Do Indian Stock Markets Matter?

This paper deals with the inter-relationships between stock prices and important macro-economic variables. Specifically, following macro-economic variables: Exchange rate of rupee vis-a-vis the dollar, prime lending rate, narrow money supply, broad money supply, and index of industrial production are considered. The econometric analysis uses state-of the art techniques such as unit root testing, cointegration and error-correction models. The analysis and discussion are situated in the context of macro-economic changes, especially in the financial sector, that have been taking place in India since the early nineties.