From Manila to Beijing: Geopolitical Risk, Macroeconomics, and the Indian Stock Market in a Volatile Region

This study investigates the dynamic effect of geopolitical risks (GPR) from certain Southeast Asian nations—most prominently the Philippines and China—on the Indian stock market, in terms of significant domestic macroeconomic determinants such as the INR–USD exchange rate, inflation, and crude oil prices. With the aid of advanced econometric techniques, such as the F-bounds test, Johansen cointegration test, vector error correction model, and variance decomposition analysis, the study presents strong evidence of long-run cointegration of the Indian stock market and the GPR of the Philippines, and high sensitivity to the GPR from China. The empirical results show that whereas the Philippines’s GPR has a positive correlation with Indian market performance—suggesting a possible regional safe-haven effect—China’s GPR has a negative correlation, in line with the principles of geographical proximity and systemic spillover. Further, domestic macroeconomic determinants, especially the exchange rate and inflation volatility, have a significant influence on market dynamics. These findings have significant implications for investors and policymakers concerned with cross-country risk transmission and in devising strategic interventions in increasingly turbulent regional environments.