INDIAN STOCK MARKET REACTION TO INTEREST RATE AND INFLATION ANNOUNCEMENTS

Events related to monetary policy and Inflation are keenly awaited by stock market participants and other economic agents. Past studies have observed that these events announcements first transmit to the stock market and then to the real sector. In the current research work we have used data from Indian economy but unlike the previous studies we have used broader market index CNX500, consisting of 500 stocks covering 97.3% of market capitalization. Further, we have also considered the impact on key sectoral indices such as, IT, Financial Services, Consumer goods and Energy. We employ event study methodology and calculate AAR and CAAR around the announcement date of the events. In some cases, the results show difference in magnitude and direction depending on whether we use narrower index NI index of 50 stocks, or broader CNX 500. We have also observed differences in impact of the events on sectoral indices.