Impact and causality relationship between Indian NSE Sectoral Indices and USD, GBP, EURO, YEN exchange rates

Abstract

This study attempted to assess the impact and causality relationship between Indian NSE sectoral indices and foreign exchange rates. The elapsed data periods from 1st of January 2009 to 31st of January 2018 has been considered for analysis purpose. The Correlation technique, Causality test and OLS regression model has been employed as an analytical framework in the study. The analysis has concluded that there is an inverse weaker negative correlation between selected indices and exchange rates. The result also showed that foreign exchange rates have an influence on most of the selected indices. Through causality test it has noticed that in most of the instances there is a one way or unidirectional causality relationship flow between sectoral indices and foreign exchange rates. It means that sectoral indices can be used as a forecasting tool for exchange rates prices. The various market participants and other policy makers can have a look to this result in decision making process.