Relationship between Stock Index and National Economy In India:An Empirical Analysis

It has been accepted that developed capital markets are able to mobilize domestic savings and able to allocate funds more efficiently. Thus, stock markets can play a role in inducing economic growth in emerging market economies like India. Thus, this paper is an attempt to investigate the causal relationship between the stock index and the national economy in the context of India over the period 2006 to 2015 using the Toda-Yamamoto approach. The empirical findings provide the evidence of unidirectional causality running from real economic growth to stock market in India over the entire observation period. This finding is significant for the policy makers of the country. Plans and policies should be formulated such that the demand side factors are made influential. This would necessitate higher resource mobilization and thus, contribute to the development of stock market of the country.