The Impact of Stock Index Prices on a Nation’s Economy

Mohammed Shehadad

doi:10.36948/ijfmr.2025.v07i06.62694

The Impact of Stock Index Prices on a Nation’s Economy

Author(s)	Mohammed Shehadad
Country	India
Abstract	The stock exchanges and their indices, like the BSE Sensex, are typically viewed as barometers of the economy due to their ability to capture the sentiments of investors, the earnings of companies, and the anticipation of growth in the future. This paper seeks to assess the relationship between India's stock market performance and major macroeconomic variables like GDP growth, inflation, and employment from the years 2018 to 2025. The analysis shows a moderately strong positive correlation (0.596) between GDP growth and the movement of the Sensex. Speculation, international capital movements, policy decisions, and unpredictable global developments cause temporary gaps between market behavior and actual economic conditions. The financial health of a country can be determined by a couple of factors. For one, the country needs to be able to grow and sustain that growth. Second, the country needs to be able to maintain its prices and have a diverse range of employment opportunities. Finally, the investors and consumers of the country need to have a sense of confidence in the economy. All of these factors need to be fulfilled for the economy to be healthy. As such, one of the factors that can be considered is the stock indices that measure the health of a market. They do provide a rough estimate on how the country is doing economically, but how much the stock index ‘The BSE Sensex’ in India predicts the growth of the country has been a heavily debated topic. It is clear that there is no consensus on how accurate such measures can be. As such, this project aims to find out if there is any correlation between the stock indices in India and the overall health of the economy, or if they are completely decoupled due to speculation and global volatility.
Keywords	BSE Sensex, stock indices, GDP growth, economic growth, correlation, Efficient Market Hypothesis, Present Value Theory, market capitalization, volatility, Foreign Institutional Investors, COVID-19 impact, speculation, policy decisions, employment, inflation, economic indicators, advantages, limitations, recommendations.
Field	Sociology > Economics
Published In	Volume 7, Issue 6, November-December 2025
Published On	2025-12-06
DOI	https://doi.org/10.36948/ijfmr.2025.v07i06.62694

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The Impact of Stock Index Prices on a Nation’s Economy

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