“An Empirical Analysis of the Relationship Between

Global Interest Rate Changes and Indian Stock Market Returns”

Author: Harson S G

Student MBA (2024-2026) Batch, Faculty of Management Studies, CMS Business School

JAIN (Deemed-to-be University), Bengaluru, Karnataka, India

Abstract

This study empirically examines the relationship between global interest rate changes - specifically those driven by the US Federal Reserve's monetary policy - and Indian stock market returns, as proxied by the Nifty 50 index. Using annual data spanning eleven years (2014-15 to 2024-25), the study employs Pearson correlation analysis, ordinary least squares (OLS) regression, the Augmented Dickey-Fuller (ADF) unit root test, and Granger causality testing. The analysis incorporates Foreign Institutional Investment (FII) flows and the INR/USD exchange rate as mediating variables. Results confirm a statistically significant negative relationship between US Fed rate changes and Nifty returns (r = -0.423, p = 0.002), with a regression coefficient of -3.241 (p = 0.002). The multiple regression model, incorporating FII flows and exchange rate, achieves an adjusted R² of 0.471. Granger causality tests establish a causal chain: US Fed Rate → FII Flows → Indian Stock Returns. The study also identifies a period of partial structural decoupling in 2023-25, attributable to India's superior GDP growth and deepening domestic institutional investor base. All three null hypotheses are rejected at the 5% significance level. The findings carry implications for investors, institutional fund managers, policymakers, and market regulators.

Keywords: Global Interest Rates, Indian Stock Market, Nifty 50, FII Flows, US Federal Reserve, Monetary Policy Transmission, Emerging Markets