THERE IS A CORRELATION BETWEEN THE MONTHLY PRICES OF COMMON STOCKS AND THE MONTHLY INFLATION RATE IN INDIA

Abstract

The purpose of this study is to investigate the connection that exists between the monthly prices of common stocks and the current monthly inflation rate in India. For the purpose of determining whether or whether there are any patterns or connections between these two economic indicators, the study is based on historical data that spans many years. The purpose of this study is to investigate the nature of the relationship between inflation, which is defined as the rate at which the overall level of prices for goods and services increases, and the performance of the stock market, more especially the pricing of common stocks. In it, the theoretical frameworks that propose a negative association are investigated. According to these frameworks, rising inflation typically results in decreasing stock values. This is because growing inflation leads to increased costs of products, decreased consumer spending, and tighter monetary policies. In the other direction, the study also takes into account the possibility that stock prices might rise in tandem with inflation, particularly in situations where businesses are able to pass on greater costs to their customers. A statistical study of monthly data on stock prices and inflation rates is used as part of the technique. This analysis makes use of methods such as correlation coefficients and regression analysis to measure the strength of the link as well as the direction in which it is developing. Therefore, the findings are intended to contribute to a better understanding of investing strategies in an inflationary climate by providing insights into whether or not stock values in India move in tandem with inflation or whether or not they demonstrate an inverse connection. The conclusion of the study includes a discussion of the implications of the observed connection for investors, policymakers, and economic strategists. The study emphasizes the significance of taking inflationary trends into consideration while investing in the stock market as well as the larger economic effect on the financial markets in India.