Macroeconomic Determinants of Nifty 50 Returns: Evidence from the ARDL Model

This study investigates the effect of Foreign Portfolio Investment (FPI), the India VIX index, and the USD/INR exchange rate on Nifty 50 returns, using monthly data from January 2015 to December 2024. The ARDL Bounds Testing method was applied to examine the short-term and long-term associations between these variables. The Augmented Dickey-Fuller test confirmed that the variables were integrated at orders I(0) and I(1), thereby justifying the use of the ARDL model. The ARDL bounds test outcomes confirmed the presence of a long relationship between the variables. Long-term estimates indicate that FPI has a positive and significant effect on Nifty 50 returns. In contrast, the India VIX and the USD/INR exchange rate do not exert a significant long-term effect. However, the Error Correction Model (ECM) reveals that the India VIX and the USD/INR exchange rate negatively influence stock returns in the short period. Diagnostic and stability tests confirmed the reliability and stability of the estimated model. These results suggest valuable insights for investors, portfolio managers, and policymakers seeking to better understand the factors affecting the Indian stock market.