A Study on Stock Market Development and Economic Growth: Evidence from India (2004–2024)

Abstract: This paper examines the dynamic relationship between the Bombay Stock Exchange (BSE) and key macroeconomic indicators of economic growth in India over a two-decade period from 2004 to 2024. Utilizing quarterly data for Gross Domestic Product (GDP) growth rate, Inflation Rate, and Exchange Rate (INR/USD), the study employs econometric techniques to analyze their interplay. The Augmented Dickey-Fuller (ADF) test confirms the stationarity properties of the data series. The Granger causality test reveals a unidirectional causal relationship running from the BSE Sensex to the Exchange Rate. Furthermore, multiple regression analysis identifies Inflation as the most significant positive influencer of the BSE Sensex, followed by the Exchange Rate, while GDP growth shows no statistically significant impact in the short run. The findings suggest that stock market performance is highly sensitive to monetary policy variables like inflation and forex dynamics, underscoring its role as a leading indicator in the post-liberalization Indian economy

Keywords: Stock Market Development; Economic Growth; BSE Sensex; Unit Root Test; Granger Causality; Multiple Regression; India.