Published Online:March 2025
Product Name:The IUP Journal of Financial Risk Management
Product Type:Article
Product Code:IJFRM040325
DOI:10.71329/IUPJFRM/2025.22.1.66-75
Author Name:Fatemabibi Abubaker Salehbhai
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:66-75
The paper examines the impact of foreign exchange rates and foreign portfolio investments (FPIs) on the volatility of India’s stock markets, specifically BSE Sensex and NSE Nifty 50. Using daily data, it analyzes the relationship between key foreign exchange rates (USD, euro and yen) and FPI flows to assess their influence on market indices. The results indicate a positive correlation between both exchange rates and FPI inflows with Indian stock indices, with exchange rates explaining a marginally higher variance than FPIs. However, the relatively low R² values suggest that other macroeconomic factors may play a larger role in driving stock market volatility. The findings offer nuanced insights for investors, technical analysts, and policymakers, encouraging a broader view of market dynamics that considers both foreign exchange rates and FPIs as minor but measurable influencers amid an array of impactful economic factors. By focusing on post-2020 market conditions and regulatory shifts, the study provides actionable guidance for market participants in an increasingly interconnected global economy.
The Indian stock market holds a pivotal position in the nation’s economy, serving as a barometer of economic health and providing a platform for wealth generation and financial inclusion.