Impact of Interest Rate Changes on Stock Market Performance in India

This study examines the impact of interest rate changes on stock market performance, with a particular focus on how fluctuations in central bank rates influence investor behavior, equity valuations, and overall market trends. Interest rates, particularly benchmark rates such as the repo rate set by central banks, are key monetary policy tools that directly affect the cost of borrowing and liquidity in the economy. Changes in these rates can lead to significant adjustments in investment decisions, corporate profits, and economic growth expectations— factors that in turn influence stock prices. The research explores both theoretical frameworks and empirical evidence to understand the correlation between interest rate movements and stock indices. Historical data analysis, particularly from emerging markets like India, is used to assess how rate hikes or cuts impact major indices such as the Nifty 50 and Sensex. The findings suggest a generally inverse relationship—rising interest rates tend to depress equity prices due to higher discount rates and lower future earnings projections, while falling rates often boost market performance by stimulating borrowing and investment. This paper aims to provide a clear understanding of this dynamic, which is vital for investors, policymakers, and financial analysts.