Relationship Between Indian Banking Sector and Indian Stock Market- An Empirical Study

Abstract

Undoubtedly, it can be said that banking sector is one of the rapidly rising sectors among all the sectors in an economy with respect to today's era. Therefore, in this study, the relationship between some Banks and Stock Market is analyzed with respect to India. The study attempts to answer one critical question i.e. whether the development in banks and stock markets are positively related in India or not? and what is the cause and effect relationship between both? For the purpose of analysis, stock prices are taken from the official website of National Stock Exchange (NSE). Nifty 50 is taken as the measure of stock market indices and Nifty Bank index is taken as a measure of the performance of banking sector. The period of analysis is from April 1^st 2007 to April 31^st 2018. Unit-root test and granger causality test are used in order to arrive at the conclusions. The empirical results show that the two variables are non-stationary in nature and there exists a negative relationship between banks and stock markets in India. The results further suggest that banking sector acts as one of the cause for the developments in Stock Market in India.