A

Project Report On
“A Study on Impact of Macro Economic Factors on
Money Supply in Indian Economy”
A Report Submitted To
SDJ International College,
Vesu

Affiliated To:
Veer Narmad South Gujrat University, Surat
For,
Partial Requirement for the Fulfilment of the Degree of
Bachelor of Business Administration
(BBA)
Submitted By:
DER UTSAV VIKRAMBHAI
Roll NO: 024
TYBBA (FINANCE)
Under The Guidance Of:
MR. KRUNAL SONI
SDJ INTERNATIONAL COLLEGE (BBA PROGRAM)
VEER NARMAD SOUTH GUJRAT UNIVERSITY, SURAT JUNE-
2021

I
 DECLARATION

I, MR. UTSAV DER, hereby declare that the project report entitled “A

Study on Impact of Macro Economic Factors on Money Supply in

Indian Economy” is the original piece of research work carried out by me

under the guidance and supervision of DR. KRUNAL SONI, Assistant

Professor, SDJ International College, affiliated to Veer Narmad South

Gujarat University, Surat. I further declare that all the data and information

collected through secondary sources are duly acknowledged in the report.

-------------------
Date: UTSAV DER
Place: Surat Roll No.: 024
Exam Seat No.:
SDJ International
College, Vesu

II
 Acknowledgements

At this point, when I am about to finish my project work, it is my

privileged opportunity to thank all those people for their contribution
provided to this research work.

Firstly I would like to thank our honorable director Mr. Deepak Vaidya,
who always work and think in the direction of betterment of the students
and institute as well as supporting us with all the necessary resources to
finish our three golden years of graduation.

Next, I wish my heartfelt thanks to coordinator of this college Ms. Aditi

Bhatt, who always motivate us to fulfil our dreams and lead us in the
direction of growth. She has given her valuable inputs for effective
completion of this project.

I cannot forget the contribution of my project guide Dr. Milind H. Parekh,

without the support of whom I would have never completed this report. His
constant help, guidance and continuous teaching has given me so many
inputs on academic as well as non-academic front.

I would also like to thank Mr. Sanjay Bhatt, Librarian, with the effort of
whom, we could get the insights and learning from past years reports.

Lastly, I would thank all my friends, respondents and other persons directly
or indirectly, who have supported me in completing this report.

June, 2021 UTSAV DER

Surat

III
 TABLE OF CONTENT

SR. NO. TITLE PAGE

NO.
1 INTRODUCTION 1

1.1 Indian economy 1

1.2 Financial market 1

1.3 Macro economics 5

1.4 Money supply 7

1.5 Statistical tools 9

2 LITERATURE REVIEW 11

3 RESEARCH METHODOLOGY 19

1.1 Research 20

1.2 Research hypothesis 20

1.3 Objectives 20

1.4 Research design and sources of data 20

1.5 Sampling design with sample size 23

1.6 Limitations 24

4 DATA ANALYSIS AND DATA 25

INTERPRETATION
5 CONCLUSION 39

6 BIBLIOGRAPHY 40

IV
 LIST OF TABLE

SR. NO. TABLE NO. TABLE NAME PAGE

NO.
1 4.1 Exchange rate 26

2 4.2 Interest rate 28

3 4.3 FDI 30

4 4.4 GDP 32

5 4.5 Money supply 34

LIST OF FIGURE

SR. NO. FIGURE FIGURE NAME PAGE

NO. NO.
1 1.1 Financial market 2

2 3.1 Sources of data 22

3 3.2 Sampling data 23

V
 CHAPTER 1
INTRODUCTIO
N

INDIAN ECONOMY:
The Economy of India is the 6th largest in the world with a GDP of $2.30 trillion. If consider
Purchasing Power Parity. The Indian economy includes agriculture, handicrafts, industries
and a lot of services. Services are the main sources of economic growth in India today.
The long-term growth prospective of the Indian economy is positive due to its young
population, English prophecy, corresponding low dependency ratio, healthy savings and
investment rates, and increasing integration into the global economy. India topped the World
Bank's growth outlook for the first time in fiscal year 2015-16, during which the economy
grew 7.6%. Despite previous reforms, economic growth is still significantly slowed by
bureaucracy, poor infrastructure, and inflexible labour laws (especially the inability to lay off
workers in a business slowdown).
India has one of the fastest growing service sectors in the world with an annual growth rate
above 9% since 2001, which contributed to 57% of GDP in 2012-13. India has become a
major exporter of IT services, Business Process Outsourcing (BPO) services, and software
services with $154 billion revenue in FY 2017. This is the fastest-growing part of the
economy. The IT industry continues to be the largest private-sector employer in India. India
is the second-largest start-up hub in the world with over 3,100 technology start-ups in 2020-
21. The agricultural sector is the largest employer in India's economy but contributes to a
declining share of its GDP (17% in 2013-14). India ranks second worldwide in farm output.
The industry (manufacturing) sector has held a steady share of its economic contribution
(26% of GDP in 2013-14). The Indian automobile industry is one of the largest in the world
with an annual production of 21.48 million vehicles (mostly two and three-wheelers) in 2013-
14. India had $600 billion worth of retail market in 2015 and one of world's fastest growing
e- commerce markets.

INTRODUCTION OF FINANCIAL MARKET:

The financial markets which help in lending and borrowing and investing and raising funds.
They themselves do not lend or borrow or invest or receive funds for themselves but help
others in lending and borrowing or investing and raising funds. There are two types of
financial marketing:

1
(Figure No: 1.1 Indian Financial Market)

Indian Financial Market

Unorganised Organised
market market

Money Capital
Market Market

Primary Secondary
Market Market

Equity share 1.Security market

2.Term loan
Preference
market 3.Market
share for martgage
Debenture 4.Market for
Bond financial
guarantee

A) CAPITAL MARKET:
A capital market is a financial market in which long-term debt (over a year) or equity-backed
securities are bought and sold. Capital markets channel the wealth of savers to those who can
put it to long-term productive use, such as companies or governments making long-term
investments. There are many thousands of such systems, most serving only small parts of the
overall capital markets. Entities hosting the systems include stock exchanges, investment
banks, and government departments.

a) Primary market:
Primary market is the part of the capital market that deals with the issuance and sale of
equity- backed securities to investors directly by the issuer. Investor buys securities that were
never traded before. Primary markets create long term instruments through which corporate
entities raise funds from the capital market. It is also known as the New Issue Market (NIM).

2
In a primary market, companies, governments or public sector institutions can raise funds
through bond issues and corporations can raise capital through the sale of new stock through
an initial public offering (IPO). This is often done through an investment bank or finance
syndicate of securities dealers. The process of selling new shares to investors is called
underwriting. Dealers earn a commission that is built into the price of the security offering,
though it can be found in the prospectus.
Instead of going through underwriters, corporations can make a primary issue or right issue of
its debt or stock, which involves the issue by a corporation of its own debt or new stock
directly to institutional investors or the public or it can seek additional capital from existing
shareholders.

b) Secondary market:
The term "secondary market" is also used to refer to the market for any used goods or assets,
or an alternative use for an existing product or asset where the customer base is the second
market.
The secondary market, also called the aftermarket and follow on public offering is the
financial market in which previously issued financial instruments such us stock, bonds,
options, and futures are bought and sold. The secondary market for a variety of assets can
vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid.
The major stock exchanges are the most visible example of liquid secondary markets in this
case, for stocks of publicly traded companies.

BOMBAY STOCK EXCHANGE (BSE):

The Bombay Stock Exchange (BSE) is an Indian stock exchange located at Dalal Street,
Mumbai. Established in 1875, the BSE (formerly known as Bombay Stock Exchange Ltd.) is
Asia's first stock exchange. The BSE is the world's 10th largest stock exchange with an
overall market capitalization of more than $2.3 trillion on as of April 2018.
The Bombay Stock Exchange is the oldest stock exchange in Asia. Its history dates back to
1855, when 22 stockbrokers would gather under banyan trees in front of Mumbai's Town
Hall. The location of these meetings changed many times to accommodate an increasing
number of brokers. The group eventually moved to Dalal Street in 1874 and became an
official organization known as "The Native Share & Stock Brokers Association" in 1875.
Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to
an electronic trading system developed by CMC Ltd. in 1995. It took the exchange only 50
days to make this transition.
This automated, screen-based trading platform called BSE On-Line Trading (BOLT) had a
capacity of 8 million orders per day. The BSE has also introduced a centralized exchange-
based internet trading system, BSEWEBX.co.in to enable investors anywhere in the world
to trade

3
on the BSE platform. Now BSE has raised capital by issuing shares and as on 3 May 2017 the
BSE share which is traded in NSE only closed with Rs.999.
The BSE is also a Partner Exchange of the United Nations Sustainable Stock Exchange
initiative, joining in September 2012.
BSE established India INX on 30 December 2016. India INX is the first international
exchange of India. BSE launches commodity derivatives contract in gold, silver.

A) MONEY MARKET:
As money become a commodity, the money market became a component of the financial
market for assets involved in short term borrowing, lending, buying and selling with original
maturities of one year or less. Trading in money markets is done over the counter and is
wholesale.
Money markets, which provide liquidity for the global financial system including for capital
markets, are part of the broader system of financial markets.
The money market consists of financial institutions and dealers in money or credit who wish
to either borrow or lend. Participants borrow and lend for short periods, typically up to twelve
months. Money market trades in short-term financial instruments commonly called "paper".
This contrasts with the capital market for longer-term funding, which is supplied by bonds
and equity.

RESERVE BANK OF INDIA:

The Reserve Bank of India (RBI) is India's central banking institution, which controls the
issuance and supply of the Indian rupee. Until the Monetary Policy Committee was
established in 2016, it also controlled monetary policy in India. It commenced its operations
on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934. The original share
capital was divided into shares of 100 each fully paid, which were initially owned entirely by
private shareholders. Following India's independence on 15 August 1947, the RBI was
nationalized on 1 January 1949.
The RBI plays an important part in the Development Strategy of the Government of India. It
is a member bank of the Asian Clearing Union. The general superintendence and direction of
the RBI is entrusted with the 21-member central board of directors: the governor; four deputy
governors; two finance ministry representatives (usually the Economic Affairs Secretary and
the Financial Services Secretary); ten government-nominated directors to represent important
elements of India's economy; and four directors to represent local boards headquartered at
Mumbai, Kolkata, Chennai and the capital New Delhi. Each of these local boards consists of
five members who represent regional interests, the interests of co-operative and indigenous
banks.
The central bank was an independent apex monetary authority which regulates banks and
provides important financial services like storing of foreign exchange reserves, control of

4
inflation, and monetary policy report till August 2016. A central bank is known by different
names in different countries.
The functions of a central bank vary from country to country and are autonomous or quasi-
autonomous body and perform or through another agency vital monetary functions in the
country.
A central bank is a vital financial apex institution of an economy and the key objects of
central banks may differ from country to country still they perform activities and functions
with the goal of maintaining economic stability and growth of an economy. He Foreign
Exchange Management Act, 1999 came into force in June 2000. It should improve the item in
2004-2005 (National Electronic Fund Transfer).
The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was
founded in 2006 and produces banknotes and coins.
The national economy's growth rate came down to 5.8% in the last quarter of 2008-2009 and
the central bank promotes the economic development.
In 2016, the Government of India amended the RBI Act to establish the Monetary Policy
Committee (MPC) to set. This limited the role of the RBI in setting interest rates, as the MPC
membership is evenly divided between members of the RBI (including the RBI governor)
and independent members appointed by the government. However, in the event of a tied vote,
the vote of the RBI governor is decisive.

FUNCTION OF RBI:
1) Financial supervision0
2) Regulator and supervisors of the financial system
3) Banker and debt manager to government
4) Managing foreign exchange
5) Issue of currency

MACRO ECONOMICS:

A) INTRODUCTION:
Macroeconomics is a branch of economics dealing with the performance, structure,
behaviour, and decision making of an economy as a whole. This includes Regional, national,
and global economics. In 1936, john Maynard Keynes published the general theory of
macroeconomics. Hence it is also referred to as Keynesianism.
Macroeconomics is a broad field of study, there are two areas of research that are emblematic
of the discipline: the attempt to understand the causes and consequence of short run
fluctuations

5
in national income, and the attempt to understand the determinants of long run economic
growth.
Macroeconomics model and their forecasts are used by governments to assist in the
development and evaluation of economic policy.

B) MEANING:
Macroeconomics is a branch of the economics field that studies how the aggregate economy
behaves. In macroeconomics, a variety of economy wide phenomena is thoroughly examined
such as, inflation, price levels, rate of growth, national income, GDP, and changes in
unemployment.

C) DEFINITION:
Macroeconomics is the branch of economics that studies the behaviour and performance of
an economy as a whole. It focuses on the aggregate changes in the economy such as
unemployment, growth rate and gross domestic product.

FACTORS:
A) GDP:
Gross domestic product (GDP) is the monetary value of all the finished goods and services
produced within a country's borders in a specific time period. Though GDP is usually
calculated on an annual basis, it can be calculated on a quarterly basis as well United States.
GDP includes all private and public consumption, government outlays, investments, private
inventories etc.

B) INTEREST RATE:
It is defined as the proportion of an amount loaned which a lender charges as interest to the
borrower, normally expressed as an annual percentage. It is the rate a bank or other lender
charges to borrow its money, or the rate a bank pays its savers for keeping money in an
account.

C) EXCHANGE RATE:
An exchange rate is the rate at which one currency will be exchanged for another. It is also
regarded as the value of one country's currency in relation to another currency. Exchange
rates are determined in the foreign exchange market.

D) FDI:
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a
business in one country by an entity based in another country. It is thus distinguished from a
foreign portfolio investment by a notion of direct control.

6
MONEY SUPPLY:

1) INTRODUCTION:
The money is the total value of monetary assets available in an economy at a specific time.
There are several ways to define "money supply", but standard measures usually include
currency in circulation and demand deposits.

2) WHAT IS MONEY SUPPLY?

Money supply data are recorded and published, usually by the government or central bank of
the country. Money supply is the entire stock of currency and other liquid instruments
circulating in a country's economy as of a particular time. Also referred to as money stock,
money supply includes safe assets, such as cash, coins and balances held in checking and
saving accounts that business and individuals can use to make payments on hold as short term
investment.

3) DEFINITION:
The total stock of money circulating in an economy is the money supply. The circulating
money involves the currency, printed notes, money in the deposit accounts and in the form of
other liquid assets.
Money supply implies those measures designed to ensure an efficient operation of the
economic system or set of specific objectives through its influence on the supply, cost and
availability of money. It is a policy to regulate the flows of monetary resources in the
economy to attain certain specific objectives.
The various types of money in the money supply are generally classified as M0, M1, M2 and
M3, according to the type and size of the accounting in which the instrument is kept. Not all
of the classifications are widely used and each country may use different classification.

COMPONENTS OF MONEY SUPPLY:

a) MO = Reserve money
b) M1 = Money supply
c) M2 = M1 + post office saving bank deposits
d) M3 = M1 + time deposit with bank + aggregate monetary resources
e) M4 M3 +the total post office deposits.

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5) ADVANTAGE OF MONEY SUPPLY:
1) ECONOMICAL
Paper money practically costs nothing to the government. Currency notes, therefore, are the
cheapest media of exchange. If a country used paper money, it need not spend anything on
the purchase of gold or minting coins.

2) CONVENIENT
As per money is the most convenient from of money. A large amount can be carried
conveniently in the pocket without anybody knowing it.

3) HOMOGENEOUS
One essential quality in money is that it must be exactly of the same type. Even among the
coins there are good and bad coins. But currency notes are all exactly similar.

4) STABILITY
The value of paper money can be kept stable by properly regulating its issue. That is why
there are many advocates of 'managed" paper currency.

5) ELASTICITY
Paper money is absolutely elastic. Its quantity can be increased or decreased at the will of the
currency authority. Thus paper money can batter meet the requirements of trade and industry.

6) CHEAP REMITTANCE
Money in the form of currency notes can be cheaply remitted from one place to another in an
insured cover.

6) DISADVANTAGES OF MONEY SUPPLY:

1) INSTABILITY
A great disadvantage of money is that its value does not remain constant which creates
instability in the economy.

2) INEQALITY OF INCOME
Money through its excessive use and inflationary effect, creates and widens the inequalities in
the distribution of income and wealth.

3) GROWTH OF MONOPOLIES
The use of money leads to the concentration of wealth in a few hands and this gives rises to
monopolies. Growth of monopolies results in the exploitation of the workers brings misery
and degradation to them.

8
4) OVER CAPITALIZATION
Easy borrowing and lending facilities, made possible through money, may lead certain
industries to use more capital than is required. This over-capitalization, in turn, results in
over- production and unemployment.

5) MISUSE OF CAPITAL
Money which is the basis of credit, leads to the creation of more and more credit creation, if
not matched by the increase in production results in inflationary rise in the prices.

6) BLACK MONEY
Money due to storability characteristics is the cause of the evil of black money. It provides
people a convenient way to evade taxes by concealing their income. Black money, in turn,
encourages black marketing and speculative activities.

STATESTICAL TOOLS
a) Correlation
Correlation is used to examine the relationship between one dependent and one independent
variables. After performing an analysis, the relation statistic can be used to predict the
dependent variable when the independent variable is known. Relation goes beyond
correlation by adding prediction capabilities. It is statistical technique for creating a
mathematical equation to explain them relationship between know variable so that the model
can be used to predict other variables when one has insufficient data.

b) Regression
Regression is used to examine the relationship between one dependent and one independent
variables. After performing an analysis, the regression statistics can be used to predict the
dependent variable when the independent variable is known. Regression goes beyond
correlation by adding prediction capabilities. It is a statistical technique for creating a
mathematical equation to explain the relationship between know variables so that the model
can be used to predict other variables when one has insufficient data.

c) Equation of line of regression

The equation of regression line of y on x obtained by least squares principle will be as follow:
y=a + byx(x)
Similarly if regression line of x on y is obtained by applying least squares principle, its
equation will be as follow: Equation of regression line of x on y x=A + bxy(y)
It is clear that in the regression line of y on x, x is independent variable and y is dependent
variable. Hence when we went to estimate a value of y for a given value of x, we should use
this equation. Similarly in the regression line of x on y, y is an independent variable and x is a

9
dependent variable. Hence for obtaining estimated value of x, for a given value of y we
should use the second equation of regression line of x on y.

e) ANOVA
ANOVA are commonly used when deciding whether groupings of data by category are
meaningful. It the variance of test scores of the left- handed in a class is much smaller than
the variance of the whole class, than it may be useful to study lefties as a group. The null
hypothesis is what two variances are the same so the proposed groping is not meaningful.

10
 Chapter 2
Literature Review

11
1. (AHMAD & Shamima , 2017)The research enhances the understanding of the
macroeconomic variables and policy rates and would surely assist in policy
making and further research on the subject. The research uses basic statistical tools
such as correlation, regression and advance statistical tools such co-integration and
Vector Auto Regression to study the variables and draws conclusion based on the
results. The data used is from Indian economy and the time period used is 2011-2014.
Month and quarterly data has been used as required. The research is aimed to provide
information to decision makers in formulating policies and to contribute to the
existing literature on the subject.

2. (chakravaty, 1995)This paper reexamines the relationship between stock price and
some key macroeconomic variables in India for the period 1991-2005 using monthly
time series data. The study uses Granger non causality test procedure developed by
Toda and Yamamoto (1995). The results of the study indicate that index of industrial
production and inflation Granger cause stock price but stock price does not cause
either of the two so the causation is unidirectional. The causal relation between stock
price and money supply is unidirectional as stock price Granger cause money supply
but money supply does not. On the other hand there is no causal relation between
stock price and exchange rate. Similarly there is no causal linkage between gold price
and stock price.

3. (Ray, 2012)The key objective of the present study is to explore the impact of
different macroeconomic variables on the stock prices in India using annual data
from 1990-91 to 2010-11. A multiple regression model is designed to test the
effects of macroeconomic variables on the stock prices and granger causality test
is conducted to examine whether there exist any causal linkage between stock
prices and macroeconomic variables. The multiple regression results of the study
indicate that oil price and gold price have a significant negative effect on stock
price, while balance of trade, interest rate, foreign exchange reserve, gross
domestic product, industrial production index and money supply positively
influence Indian stock price. On the other hand, inflation rate, foreign direct
investment, exchange rate and wholesale price index do not appear to have any
significant effect on stock price. The results have implications on domestic as

12
 well as foreign investors, stock market regulators, policy makers and stock market
analysts.

4. (osamwonyi & Esther, 2012)The major finding is that macroeconomic variables

influence stock market index in Nigeria. It considers the yearly data of several
macroeconomic variables of interest rates, inflation rates, exchange rates, fiscal
deficit, GDP and money supply from 1975 to 2005; and it tries to reveal the relative
influence of these variables on the ‘All Share Index’ of the Nigerian capital market. In
pursuance of this, the Vector Error Correction Model (VECM) was used to study the
short-run dynamics as well as long-run relationship between the stock market index
and the six selected macroeconomic variables from the Nigerian economy.

5. (nisha, 2015)Findings of this paper indicate that a considerable impact of interest

rate, gold price, exchange rate and money supply is observed for the stock returns
of BSE. research directions can be related to the use of varied global
macroeconomic factors like international interest rates, global inflation and world
oil prices to examine the influence upon the stock returns of the Indian stock
market. unavailability of data and time constraints has deterred the employment
of a longer period of data in this study as well as using a different frequency of
data like weekly or daily data series for the set of variables.

6. (kumari & Jitendra , 2014)The findings suggest a linkage between macroeconomic

volatility and equity market volatility. Indian stock market covering the data period
from July 1996 to March 2013. The present study investigates the issue with two
stage estimation techniques. Further, multivariate VAR model along with impulse
response function, block erogeneity and variance decomposition are carried out to
analyse the relationship between stock market volatility and macroeconomic
volatility. Data on macroeconomic variables namely output, foreign institutional
investments, exchange rate, short term and long-term interest rates, broad money
supply, inflation and stock market indices BSE Sensex and NSE Nifty are used for
analysis.

13
7. (elsheikh & suliman, 2011)The analyses suggests that the causation runs from
money supply to prices, but price level does not causes money supply. The co-
integration analysis has established that the real GDP, money supply and price
level were found to be co-integrated suggesting a existence of long-run relationship
between these macroeconomic variables. Finally, there is no causality between real
GDP and money supply in the case of Sudan during the period 1960 – 2005.
Further, the co-integration analysis established that the real GDP, money supply
and CPI were found to be co-integrated suggesting a existence of long-run
relationship.

8. (aman, 2010)The findings of the study conclude that emerging economies like
India in long term are more affected by domestic macroeconomic factors than
global factors. The study observes that three out of five factors are relatively
more significant and likely to influence the long term pricing mechanism of Indian
stock market. These factors are Industrial Production, WPI, and interest rate. He study
has seen that asset-pricing theories do not specify the fundamental macroeconomic
factors that affect securities prices. The purpose of this paper is to investigate
the impact of change in macroeconomic factors on the Indian stock market. The
findings of the study conclude that emerging economies like India in long term
are more affected by domestic macroeconomic factors than global factors.

9. (luthra & Sikha , 2014)Regression results indicate that Exchange rate, Inflation,
GDP growth rate affect banking index positively whereas Gold prices have
negative impact on BSE Banker but none of them have significant impact on
Banker. Data relating to all the factors is collected from www.rbi.org. Using SPSS a
multiple regression model is developed which shows the regression co-efficient
between the share prices and various factors affecting the same Inflation, Exchange
Rate and GDP growth rate affect the Banker positively.

14
10. (ramadanbaraket, Sara , & Khaled m. Hanafy, 2016)Results indicated that there is a
causal relationship in Egypt between market index and consumer price index
(CPI), exchange rate, money supply, and interest rate. researchers found that
macroeconomic variables have a strong relation with stock market, which supports
the results that the four variables have some kind of association with the stock
market index and the fact that there is a long run relationship between
macroeconomic variables and the stock market index. The key objective of this
study is to shed light on the relationship between the stock market and
macroeconomic factors in two emerging economies (Egypt and Tunisia) for the
period from January 1998 to January 2014.

11. (naik & pramod, 2012)The analysis reveals that macroeconomic variables and the
stock market index are co-integrated and, hence, a long-run equilibrium relationship
exists between them. It is observed that the stock prices positively relate to the
money supply and industrial production but negatively relate to inflation. the
analysis revealed that the Indian stock market index as provide by BSE Sensex
formed significant long-run relationship with three out of five macroeconomic
variables tested. The study investigates the relationships between the Indian stock
market index (BSE Sensex) and five macroeconomic variables, namely, industrial
production index, wholesale price index, money supply, treasury bills rates and
exchange rates over the period 1994:04–2011:06.

12. (gay, 2008)The goal of this study is to investigate the time series relationship
between stock market index prices and the macroeconomic variables of exchange
rate and oil price for Brazil, Russia, India, and China (BRIC) using the Box-
Jenkins ARIMA model. Another interesting point of the results is the relationship
observed between respective stock market prices and monthly oil prices. As
hypothesized, the relationship would be inverse. Also, there was no significant
relationship found between present and past stock market returns, suggesting the
markets of Brazil, Russia, India, and China exhibit the weak-form of market
efficiency.

15
13. (kumar, 2013)It has been established that industrial performance play significant
role in influencing the stock market. Though some impact of policy rates cannot
be denied but it does not seem sustainable. The study highlights that favorable
macro environment in India is good for the stock market and the stocks can
trade with high Price Earning ratio that faith in the stock market improves
considerably. This paper, based on the average monthly data (January, 2001 to
May, 2013) of 12 macroeconomic variables, uses the data reduction technique-
factor analysis to derive the factors which determine the performance of stock
market in India.

14. (tripathi, 2014)This article examines the causal relation- ships between the stock
market performance and select macroeconomic variables in India, using monthly data
from July 1997 to June 2011.they use factor analysis, ADF and PP Unit root tests,
Regression, ARCH model, Granger causality and Johansen Co-integration test for
data analysis. The results are mixed but interesting. While, there is significant
correlation among stock market variables and macroeconomic factors except for
exchange rate, the Granger causality is prevalent only in respect of few variables out
of which exchange rate is the single variable that is granger causing BSE Sensex and
BSE India market Capitalization money supply is also granger causing market
turnover.

15. (alam & Kashif Rashid, 2014)The results show that the co-integrating relationship
exists between stock prices and the macroeconomic variables in Pakistani stock
market. The depreciation of Pakistani rupee causes the stock returns to be lower
and vice versa. The Autoregressive Conditional heteroscedasticity Lagrange
Multiplier (ARCH LM) test provided prudent evidence about the presence of
heteroscedasticity in the data. The Generalized Autoregressive Conditional
heteroscedasticity (GARCH) model was used to find out the relationship between
stock returns and the variance of the squared error terms as there was
heteroskedastic trend in the data.

16
16. (AHMED, 2008) The purpose of the present study is to explore the casual
relationships between stock prices and the key macro variables representing real and
financial sector of the Indian economy the present analysis is based on quarterly data
from March 1995 to march, 2007. It may be inferred that monetary policy measures
affecting interest rate are critical in influencing stock market in India. The study
indicates that stock prices in India lead economic activity except movement in
interest rate. Interest rate seems to lead the stock prices.

17. (SINGH, SEPTEMBER 2014) The money supply has positive impact on the stock
market that reveals that larger money in circulation has favorable impact on stock
market during the period of study. The study also signifies long rum equilibrium
relationship among the variables. The foreign investors need to remain stable in the
Indian market as their movement effect the stock prices. The foreign capital has
become the major factor that accelerates the stock prices. The data used in the study
is in the monthly frequency and period of the study includes from January 2011 to
December 2012. The empirical results exhibit significant impact of
macroeconomic variables on Indian stock market.

18. (SHARMA & Mandeep Mahendru, AUGUST 2010)The main objective of the study
to determine the lead and lag interrelationship between the stock price and
macroeconomic variable. Macroeconomic variables used in this study are change in
exchange rate, foreign exchange reserve inflation rate and gold price. There is 88.9%
correlation of exchange rate with stock price and gold price has 90.2% correlation
with stock price. The period of study is January 2008 to January 2009 result reveal
that there is high correlation between the empirical results reveal that exchange rate
and gold price highly effect the stock prices.

17
19. (hosseini, Zamri , & Yew Wah lai, november 2011)The finding show that in both long
and short run, there is linkage between the four selected macroeconomic variable and
stock market in china and India in long run the impact the increases in crude oil price
in china is positive but in India these effect is negative. In the short run, the
contemporaneous effect of crude oil price is positive in India. The period covers in
this study is between January 1999 to January 2009. Using the Augmented Dickey-
Fuller unit root test, the underlying series are tested as non-stationary at the level but
stationary in first difference.

20. (kanjilal, march, 2011) The study aims at understanding the dynamics of the linkage,
if any, between the term structure of interest rates and the macroeconomic factors of
the deregulated Indian economy .This study integrates macroeconomic factors and
yield curves with two-fold objectives: first, to investigate the dynamic linkages
between macro and yield factors and second to see if the integrated macro-yield
model improves the prediction of yield. This article investigates the dynamic linkages
between the estimated parameters of a zero coupon yield curve and macroeconomic
variables like inflation, gross domestic product growth in the presence of a monetary
policy indicator in India for the period July 1997 to February 2004.

18
 Chapter 3
Research methodology

19
1) RESEARCH:

DEFINITION:
“Business research is the process to find out unknown variables related to business decisions
or to find out so far unknown relationship between known or unknown variables”.
There are two terminologies viz. ‘Invention’ and ‘Discovery’. Out of these two terms, a
business research is more of a discovery because we collect, classify and compile
information. Which already existed somewhere in another form.
Research methodology is the systematic, theoretical analysis of the methods applied to a
field of study. It comprises the theoretical analysis of the body of methods and principles
associated with a branch of knowledge.

2) RESEARCH HYPOTHESIS:

H0: there is no significant relationship between macro-economic factors and money supply.

3) OBEJECTIVES:

1) To find out relation between macro-economic factors like; GDP, Interest rate, Inflation
rate, Exchange rate and FDI on Money supply.

2) To find dependency of macro-economic factors on money supply.

4) RESEARCH DESIGN AND SOURCES OF DATA:

RESEARCH DESIGN:

Research design is the framework of conducting research for a project. It specifies all the
details of procedures necessary for obtaining, processing and analyzing the information
needed to exactly define the research problem and to solve thatresearch problem

20
 Types of Research
A) EXPLORATORY RESEARCH:
An exploratory research focuses on the discovery of ideas and is generally based on
secondary data. It is preliminary investigation which does not have a rigid design. This is
because a researcher engaged is an exploratory study may have to change his focus as a result
of new ideas and relationship among the various.

B) CONCLUSIVE RESEARCH:
Conclusive research design usually follows exploratory designs. This process will be more
exhaustive activity. Exploratory researches are normally problem identifying researches
whereas conclusive researches try to offer solution to the problem. There are two broad
categories of conclusive research as follow:
I. Descriptive design

II. Casual design

1) Descriptive design:
Descriptive designs are most widely utilized research designs in social science like
management. it is quite unlikely that a given business problem can be described by
relationship between 3 or 4 variables.

2) Causal design:
In causal research design, purpose is to study relationship between 2 kinds of variables,
a) Resultant variable
b) Causing variable

There are two separate logics by when this cause and effect relationship can be studied.

21
SOURCES OF DATA:
The Data collection can be done by the following two methods:
(Figure No: 3.3 Sources of Data)

Sources of data

Primary data Secondary

data

1. PRIMARY DATA:
“The primary data are those data which are collected by any researcher first time and before
no one has collected those data is known as the primary data”.

2. SECONDARY DATA:
“The secondary data are those which are already collected and used for some other context”.
This report contains secondary data to analyses the impact of macro- economic factors on
money supply.

22
5) SAMPLING DESIGN WITH SAMPLE SIZE:
(Figure NO: 3.4 Sample Design)

Sample
design

Probability sampling Non Probability

design sampling design

Simple random sampling 1. Convenience Sampling

Systematic Sampling 2.Judgmental Sampling
Stratified Sampling 3.Quota Sampling
Cluster Sampling 4.Snowball Sampling

1) NON-PROBABILITY SAMPLING DESIGN:

Non probability sampling design method or non-random sampling is based on theory of
probability. This sampling does not provide a chance of selection to each population
elements.

1) PROBABILITY SAMPLING DESIGN:

Probability sampling design is based on theory of probability. It is known as random
sampling. It provides a known non-zero chance of selection for each population element.

WHAT IS SAMPLE SIZE?

Sample size determination is the act of choosing the number of observation or replicates to
include in a statistical sample.

23
SAMPLE SIZE:

1) Data of GDP from 2011-2020

2) Data of interest rate from 2011-2020

3) Data of inflation rate from 2011-2020

4) Data of exchange rate from 2011-2020

5) Data of FDI from 2011-2020

In this report, “convenience sample size” is used to study the

impact of macroeconomic factors on money supply.

6) BENEFITS OF THE PROJECT:

1) To know the sensibility of money supply towards macro-economicfactors.

2) To know the effect of variability of money supply on macro-economic factors.
3) The study shall provide the detailed analysis of macro-economic factors on money
supply.

7) LIMITATION OF THE PROJECT:

1. There are other factors which affected might on money supply.

2. Number of years is small, so significant result can be not measure for a longer period.

24
 Chapter 4
Data Analysis and Data Interpretation.

25
DATA EXCHANGE RATE OF US DOLLOR IN RUPEES

(Table No: 4.1 Exchange Rates)

YEARLY QUATARLY EXCHAGE % CHANGE

RATE (US IN
DOLLER IN EXCHANGE
RUPEES) RATE
2011 Q1 45.26 0.29
Q2 44.71 -1.22
Q3 46.36 3.69
Q4 51.43 10.94
2012 Q1 49.92 -2.94
Q2 55.08 10.34
Q3 54.74 -0.62
Q4 54.47 -0.49
2013 Q1 53.81 -1.21
Q2 56.80 5.56
Q3 63.48 11.76
Q4 61.90 -2.49
2014 Q1 61.54 -0.58
Q2 59.82 -2.79
Q3 60.77 1.59
Q4 62.23 2.40
2015 Q1 62.04 -0.31
Q2 63.69 2.66
Q3 64.35 1.04
Q4 66.12 2.75
2016 Q1 67.60 2.24
Q2 67.11 -0.72
Q3 66.89 -0.33
Q4 67.77 1.32
2017 Q1 66.46 -1.93
Q2 64.50 -2.95
Q3 64.48 -0.03

26
 Q4 64.37 -0.17
2018 Q1 64.61 0.37
Q2 67.60 4.63
Q3 70.69 4.57
Q4 71.14 0.64
2019 Q1 70.46 -0.96
Q2 59.52 -15.53
Q3 70.44 18.35
Q4 71.61 1.66
2020 Q1 50.63 -29.29
Q2 48.04 -5.11
Q3 53.72 11.82
Q4 49.17 -8.46
2021 Q1 73.13 -1.06
Q2 74.36 2.55
Q3 74.16 1.67
Q4 74.46 -0.83
2022 Q1 75.90 0.08
Q2 78.95 0.54
Q3 81.51 1.78
Q4 82.71 1.67

27
INTEREST RATE (BANK RATE)

(Table No: 4.2 Interest Rate (Bank Rate)

YEARLY QUATARLY INTEREST % CHANGE

RATE(BANK IN INTERST
RATE) RATE
2011 Q1 5.41 0.04
Q2 5.91 0.09
Q3 7.08 0.19
Q4 7.5 0.05
2012 Q1 8.5 0.13
Q2 8 -0.05
Q3 8 0
Q4 7.75 -0.03
2013 Q1 7.41 -0.04
Q2 7.33 -0.01
Q3 7.33 0
Q4 7.25 -0.01
2014 Q1 8 0.10
Q2 8 0
Q3 8 0
Q4 8 0
2015 Q1 8.66 0.08
Q2 8.58 -0.09
Q3 8.08 -0.05
Q4 7.75 -0.04
2016 Q1 7.75 0
Q2 7 -0.09
Q3 7 0
Q4 6.75 -0.03
2017 Q1 6.75 0
Q2 6.5 -0.03
Q3 6.33 -0.02
Q4 6.25 -0.01
2018 Q1 6.25 0

28
 Q2 6.33 0.01
Q3 6.67 0.05
Q4 6.75 0.01
2019 Q1 6.58 -0.02
Q2 6.16 -0.06
Q3 5.76 -0.06
Q4 5.4 -0.06
2020 Q1 5.4 0
Q2 4.65 -0.13
Q3 4.25 -0.08
Q4 4.25 0
2021 Q1 4.25 0
Q2 4.25 0
Q3 4.25 0
Q4 4.25 0
2022 Q1 4.65 0.04
Q2 5.15 0.10
Q3 6.15 0.16
Q4 6.50 0.05

29
FDI (US $ MILLON)
(Table No: 4.3 FDI)

YEARLY QUATARLY FDI(US $ %

MILLION) CHANGE
IN FDI
2011 Q1 1163 -33.31
Q2 4057 248.84
Q3 3104 -23.49
Q4 2330 -24.94
2012 Q1 1493 -35.92
Q2 1972 32.08
Q3 3174 60.95
Q4 1448 -54.38
2013 Q1 2390 65.06
Q2 2159 -9.67
Q3 2909 34.74
Q4 1925 -33.83
2014 Q1 3259 69.30
Q2 2764 -15.19
Q3 2942 6.44
Q4 2558 -13.05
2015 Q1 3496 36.67
Q2 3816 9.15
Q3 2719 -28.75
Q4 4639 70.61
2016 Q1 3795 -18.19
Q2 1965 -48.22
Q3 4661 137.20
Q4 4398 -5.64
2017 Q1 3046 -30.74
Q2 3382 11.03
Q3 4897 44.80
Q4 1995 -59.26
2018 Q1 2868 43.76
Q2 4401 53.45
Q3 3182 -27.70

30
 Q4 3266 2.64
2019 Q1 3263 -0.09
Q2 5622 72.30
Q3 3347 -40.47
Q4 2445 -26.05
2020 Q1 5062 107.03
Q2 713 -85.91
Q3 9017 1164.65
Q4 6417 -28.83
2021 Q1 2872 -56.08
Q2 2665 -7.21
Q3 4505 69.04
Q4 3911 -13.18
2022 Q1 6459 65.07
Q2 3978 -38.41
Q3 2974 -25.24
Q4 4411 48.32

31
MONEY SUPPY (RUPEES CRORES)

(Table No: 4.5 Money Supply)

YEARLY QUATARLY MONEY %

SUPPLY CHANGE
(RUPEES IN
IN MONEY
CRORES) SUPPLY
2013 Q1 6495142 7.09
Q2 6792323 4.58
Q3 6968417 2.59
Q4 7200393 3.33
2014 Q1 7390092 2.63
Q2 7754140 4.93
Q3 7931292 2.28
Q4 8116168 2.33
2015 Q1 8364551 3.06
Q2 8764351 4.78
Q3 8921209 1.79
Q4 9287250 4.10
2016 Q1 9548113 2.81
Q2 9903657 3.72
Q3 10044043 1.42
Q4 10334768 2.89
2017 Q1 10592493 2.49
Q2 10964399 3.51
Q3 11144251 1.64
Q4 11436381 2.62
2018 Q1 11738198 2.64
Q2 12115237 3.21
Q3 12414152 2.47
Q4 12412338 -0.01
2019 Q1 12641956 1.85
Q2 12966235 2.57
Q3 13230120 2.04

32
 Q4 13431121 1.52
2020 Q1 13897756 3.47
Q2 14300649 2.90
Q3 14583058 1.97
Q4 14841054 1.77
2021 Q1 15402548 3.78
Q2 15772552 2.40
Q3 16054783 1.79
Q4 16388608 2.08
2022 Q1 16892002 3.07
Q2 17627319 4.35
Q3 18065438 2.48
Q4 18382011 1.75

33
GDP

(Table No: 4.4 GDP)

YEARLY QUATARLY GDP % CHANGE

IN GDP
2011 Q1 1969132 47.91
Q2 1913207 -2.84
Q3 2073896 8.40
Q4 2150712 3.70
2012 Q1 2074589 -3.54
Q2 2047909 -1.29
Q3 2177528 6.33
Q4 2246251 3.16
2013 Q1 2206230 -1.78
Q2 2193897 -0.56
Q3 2314941 5.52
Q4 2348579 1.45
2014 Q1 2377154 1.22
Q2 2379356 0.09
Q3 2457010 3.26
Q4 2498612 1.69
2015 Q1 2560191 2.46
Q2 2578225 0.70
Q3 2637004 2.28
Q4 2716448 3.01
2016 Q1 2798726 3.02
Q2 2791994 -0.24
Q3 2835614 1.56
Q4 2901951 2.33
2017 Q1 2952197 1.73
Q2 2962592 035
Q3 3036177 2.48
Q4 3123451 2.87
2018 Q1 3157366 1.08

34
 Q2 3142027 -0.48
Q3 3206925 2.06
Q4 3296807 2.8
2019 Q1 3307707 0.33
Q2 3278144 0.89
Q3 3318220 1.22
Q4 3397049 2.37
2020 Q1 2553320 -24.83
Q2 3048589 19.39
Q3 3624266 18.88
Q4 3896355 7.50
2021 Q1 2599861 -33.27
Q2 3092846 15.93
Q3 3392540 8.83
Q4 3596234 5.66
2022 Q1 3126277 -13.06
Q2 3381314 8.15
Q3 3553504 51.97
Q4 3736930 5.16

35
 CORRELATIONS

MONEY EXCHANGE INTEREST FDI GDP

SUPPLY RATE RATE
MONEY 1
SUPPLY
EXCHANGE -0.034 1
RATE
INTREST 0.036 -0.014 1
RATE
FDI -0.010 0.159 -1.23 1
GDP 0.377* 0.223 -0.021 -0.304 1

 Correlation is significant at the 0.05 level (2-tailed).

36
 Variables Entered/Removed
Variables Variables
Model Entered Removed Method
1 GDP, INTERST . Enter
RATE
EXCHANGE
RATE
FDI
a. Dependent Variable: MONEY SUPPLY
b. All requested variables entered.

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 .401a .161 .059 1.20366

a. Predictors: (Constant), GDP, INTERST RATE, EXCHANGE RATE

,FDI

ANOVA
Sum of Mean
Model Squares df Square F Sig.
1 Regression 9.181 4 2.295 1.584 .202b
Residual 47.810 33 1.449
Total 56.991 37
a. Dependent Variable: MONEY SUPPLY
b. Predictors: (Constant), GDP, INTERST RATE, EXCHANGE RATE, FDI

37
EXCHANGE RATE

Regression Statistics
Multiple R 0.201509
R Square 0.040606
Adjusted R
Square 0.019286
Standard Error 9.231175
Observations 47

ANOVA
Significa
  df SS MS F nce F
162.29 162.29 1.9045
Regression 1 97 97 99 0.174383
3834.6 85.214
Residual 45 57 6
3996.9
Total 46 57      

Standa
Coefficie rd P- Lower Upper Lower Upper
  nts Error t Stat value 95% 95% 95.0% 95.0%
46.896 7.5E- 66.083 60.641 66.083
Intercept 63.36231 1.3511 82 40 60.64105 56 05 56
-
0.1967 1.3800 0.1743 0.6677 0.1247 0.6677
0.29 0.27149 21 72 83 -0.12473 07 3 07

INTEREST RATE

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.114985
R Square 0.013222
Adjusted R
Square -0.00871
Standard Error 1.332459

38
Observations 47

ANOVA
Significa
  Df SS MS F nce F
1.0704 1.0704 0.6029
Regression 1 94 94 44 0.44152
79.895 1.7754
Residual 45 09 47
80.965
Total 46 59      

Standa
Coefficie rd P- Lower Upper Lower Upper
  nts Error t Stat value 95% 95% 95.0% 95.0%
0.1946 33.782 1.29E- 6.9664 6.1824 6.9664
Intercept 6.574434 11 36 33 6.182467 02 67 02
-
3.1044 0.7764 0.4415 8.6632 3.8420 8.6632
0.04 2.410584 45 94 2 -3.84209 56 9 56

FDI

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.672785
R Square 0.45264
Adjusted R
Square 0.440476
Standard Error 1101.352
Observations 47

ANOVA
Significa
  Df SS MS F nce F
451381 451381 37.212
Regression 1 95 95 78 2.22E-07
545839 121297
Residual 45 03 6

39
 997220
Total 46 98      

  Coefficie Standa t Stat P- Lower Upper Lower Upper

nts rd Error value 95% 95% 95.0% 95.0%
Intercept 3259.902 163.99 19.877 6.49E- 2929.591 3590.2 2929.5 3590.2
89 58 24 13 91 13
-33.31 5.553334 0.9103 6.1002 2.22E- 3.719798 7.3868 3.7197 7.3868
49 28 07 7 98 7

GDP

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.271491
R Square 0.073707
Adjusted R
Square 0.038081
Standard Error 353713.4
Observations 28

ANOVA
Significa
  df SS MS F nce F
2.59E+ 2.59E+ 2.0688
Regression 1 11 11 84 0.162261
3.25E+ 1.25E+
Residual 26 12 11
3.51E+
Total 27 12      

Standa
Coefficie rd P- Lower Upper Lower Upper
  nts Error t Stat value 95% 95% 95.0% 95.0%
73178. 33.827 5.03E- 262586 23250 262586
Intercept 2475446 62 45 23 2325025 7 25 7
-
10035. 1.4383 0.1622 35061. 6193.2 35061.
47.91 14433.96 01 61 61 -6193.28 21 8 21

40
MONEY
SUPPLY
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.26153
0.06839
R Square 8
Adjusted R
Square 0.04322
Standard Error 3295469
Observations 39

ANOVA
Significa
  df SS MS F nce F
2.95E+ 2.95E+ 2.7165
Regression 1 13 13 39 0.10778
4.02E+ 1.09E+
Residual 37 14 13
4.31E+
Total 38 14      

Standa
Coefficie rd P- Lower Upper Lower Upper
  nts Error t Stat value 95% 95% 95.0% 95.0%
1425115 15134 9.4162 2.3E- 1118458 173177 111845 173177
Intercept 6 63 58 11 9 22 89 22
- -
52387 1.6481 0.1077 198023 192491 198023
7.09 -863444 3 9 8 -1924911 .9 1 .9

41
FINDING

1. The study carried out under the title "impact of macroeconomic

factors", the following points are found:

a) There is positive relation between Macroeconomic factor

(GDP) and money supply because r=0.377*

b) There is positive relation between Macroeconomic factor (Interest

rate) and money supply because r=0.36

c) There is positive relation between Macroeconomic factor

(FDI) and money supply because =-0.010

d) There is negative relation between Macroeconomic

factor (exchange rate) and money supply r=-0.034

2. There is positive relation between GDP and Interest rate.

3. There is negative relation between exchange rate and FDI.

42
 CHAPTER 4
CONCLUSION

According to data analysis and finding, it can be concluded that macroeconomic

factor have significant impact in the money market. There is positively
correlation between money supply and macroeconomic factors.

43
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WEBSITES

1. https://dbie.rbi.org.in
2. https://dipp.gov.in

46