The Relationship Between Stock Price Indices and Inflation Rate in India : An Empirical Analysis of NSE Nifty

The objective of this paper is to determine the relationship between inflation rate and stock price indices (NSE Nifty). The duration of the study is from January 1, 2008 to March 31, 2019. The data is analyzed for cointegration and causality by using Johansen cointegration test, Vector Error Correction Model (VECM) and Granger causality test. For determining the relationship between the variables, Pearson correlation test has been used. The ADF test results show that the variables are non-stationary at level and are integrated of order one. The correlation results show a negative relationship between stock market indices and inflation rate in India. Johansen cointegration test results indicate cointegration between the variables. The Granger causality test shows that inflation rate does not affect the stock market indices, and stock market indices are not affected by the inflation rate. The VECM model and Wald test results show that there is no long run and short run causality between the variables