Market dynamics in India : analysing interconnections among oil, stocks, gold and forex markets

This paper examines the relationship between India's Stock Market, Forex Market, Oil Market, and Gold Market to capture interdependencies addressing both direct and indirect market linkages. The study provides new insights into the interdependencies of key markets within India, an emerging economic powerhouse and significant oil consumer. For the same, our analysis is divided into two parts. Part 1 is based on daily data, where we explore the long-run relationships from 1st January 2000 to 15th December 2023 among the markets (oil, stock, gold, and forex) using the Vector Error Correction Model. Further, monthly data from January 2000 to December 2023 (Part-2) has been employed to analyse market mechanisms through intermediary variables. We use data from 10 macroeconomic variables: Bombay Stock Exchange (BSE) Prices, INR/USD Exchange Rate, Consumer Price Index, Bank Interest Rate, 91-day Risk-free Government Bond Yield, Global WTI Oil Prices, WTI Futures, National Gold Prices, and India's and China's Imports and utilised Simultaneous Equation Models. As a major oil refiner, Indias deepening integration into global economy highligjts its markets' role in shaping international strategies and promoting insights into resilience and interdependencies amid uncertainty. Oil prices (WTI) are positively associated to WTI futures, reflecting the forward-looking nature, while gold shows a weak negative, though statistically insiginificant correlation with WTI, indicating minimal direct impact. This research provides a comprehensive analysis of the interdependencies among India's stock, forex, oil, and gold markets, shedding light on their dynamic relationships and resilience in the context of a rapidly globalizing economy. The findings not only enhance our understanding of market interconnections in one of the world's largest oil consumers but also offer critical insights for policymakers, investors, and global economic strategists navigating uncertainty and volatility in interconnected markets.