Inflation and Stock Market in India:An Analysis

This paper checked whether inflation matter for stock markets or not. In this paper the nature of relationship and the causality between inflation rates and stock market is checked for the period ranging from April 2005 to March 2015 for Indian market. Augmented Dickey-Fuller Unit Root test is applied and it is found BSE 100 series and Wholesale price Index series are non-stationary at level and at first difference these series are stationary. And then by applying Granger-Causality test, it is found that there is no causal relationship between inflation rates and stock market in Indian context. They do not lead or lag each other. Again, by applying Johansen co-integration test it is seen that inflation rates and stock market do not move together in the long run and there is co-integration between them. The findings of this paper might help policy makers and investors to take better decisions.