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ISSN: 2319-4421
ABSTRACT
Crude oil is one of the most necessitated worldwide
required commodities. Any slight fluctuation in crude oil
prices can have both direct and indirect influence on the
economy of the countries. The unpredictability of crude oil
prices forced many companies away from the competition
and it influence the stock market and many other
macroeconomic variables (inflation, GDP, Import bill
etc). Crude oil prices act like any other commodity price
i.e. based on demand and supply mechanism. Studies have
conducted to observe the impression of increase in crude
oil prices to the economic growth in the OPEC
(Organization of Petroleum Exporting Countries)
countries. Any slight fluctuation in crude oil prices has its
impact on the condition of stock markets in India and
throughout the world. The stock exchanges of all the
countries keep watch on any movement of crude oil price.
The present study is aimed to measure the relationship
between crude oil price and selected macroeconomic
variable i.e. stock market (NSE) and Inflation. The study
also analysed the relationship between selected economic
indicators and crude oil price. The period 6 years from
2007-08 to 2012-13 was taken for the analysis. The study
found that there is significant positive relationship
between crude oil price and Inflation India on the other
hand Stock market of India (NSE) also affected by the
changes in the crude oil price. The study has given
evidences of other countries also to support the finding.
Keywords
Crude oil price, Indian economy, Indian Stock Market
(NSE), Inflation.
INTRODUCTION
India satisfies its crude oil requirements by importing it
from OPEC nations. India satisfies more than 80% of its
demand by importing. Therefore, any movement in prices
is closely tracked in the domestic marketplace. It has been
noted many a times that prices of necessitated products
like crude acts as a prime driver in becoming reason of up
and down movement of price of many commodities. Any
oscillation in crude oil prices affects the other industrial
segments as well. Higher crude oil price results in higher
price of energy, which negatively affects other trading
practices which are directly or indirectly depending on
crude. Crude Oil has been traded throughout the world and
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RESEARCH HYPOTHESIS
a. Null Hypothesis:
H0 =There is no significant relationship between crude
oil price and Indian Stock Market (NSE).
Alternative Hypothesis:
Ha = There is significant relationship between crude
oil price and Indian Stock Market (NSE).
b.
Null Hypothesis:
H0 =There is no significant relationship between
crude oil price and inflation.
Alternative Hypothesis:
Ha = There is significant relationship between crude
oil price and inflation.
LITERATURE REVIEW
The relationship between oil prices and economic activity
has been investigated by a number of researchers .To
review some of the most important studies, the Financial
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RESEARCH METHODOLOGY
DATA DESCRIPTION
To study the market movement we have collected the
secondary data from various sources. In the present study
we have taken the last six year (2007-2013) NSE monthly
wise closing data from the NSE. And the monthly wise
crude oil closing data and the monthly wise crude oil price
from the energy information administration year (20072013)and we have taken the of GDP, inflation and
remittances inflow in India data movement from RBI. And
the past event the stock market and crude oil information
has been taken from various news bulletins, magazines,
journal, and websites.
METHOD
In this study we have taken the NSE as dependent variable
and crude oil price as independent variable. To find out the
relation between dependent variable and independent
variable, we have run the regression model with the help
of SPSS software and also we find the correlation between
dependent variable and independent variable, regression
analysis is used, by using these statistical tools we will
prove whether all the independent variable impact the
dependent variable or not.
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Table1:Descriptive Statistics
Inflation
Crude Oil
Mean
Std. Deviation
.7101
65.6794
.85294
19.78597
72
72
Table2:Correlations
Pearson Correlation
Sig. (1-tailed)
N
Inflation
CrudeOil
Inflation
1.000
.209
CrudeOil
.209
1.000
Inflation
.042
CrudeOil
.042
Inflation
72
72
CrudeOil
72
72
Correlation Analysis: The above box, correlation analysis moderate relationship exists between movement of crude
is performed to study the correlation between two oil prices and inflation, that is if crude oil prices will go up
variables that is crude oil and inflation. We can see that then inflation will also rise and vice versa.
the correlation coefficient r = .209, this indicates that a
Table3:Variables Entered/Removed
Model
Variables Entered
Crude Oil
Variables Removed
Method
Enter
R Square
Adjusted R Square
.209a
.044
.030
.84025
Sum of Squares
Df
Mean Square
Sig.
Regression
2.167
2.167
3.069
.04a
Residual
47.303
67
.706
Total
49.470
68
Standardized
Coefficients
Std. Error
Beta
(Constant)
.118
.353
Crude Oil
.09
.005
Model
1
.209
Sig.
.333
.740
1.752
.04
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Regression Analysis
R square is the coefficient of determination, R square
denotes the strength of the model and relationship between
independent and dependent variable, here R square is .044,
that indicates that a relationship exists between crude oil
price movement and inflation. A unit change in crude oil
causes 4.4% in inflation.
The beta coefficient describes you that how strongly
independent and dependent variable are correlated. Here
(beta=.009, sig=.04) that is significant and indicating a
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Table7:Correlations
NSE_Index_Monthly_ CrudeOilPrices_Monthly
Avg
_Avg
Pearson Correlation
Sig. (1-tailed)
N
1.000
.581
.581
1.000
.000
.000
NSE_Index_Monthly_Avg
72
72
CrudeOilPrices_Monthly_Avg
72
72
CORRELATION ANALYSIS: The above box shows the results of correlation analysis. We can see that the correlation
coefficient r = .581, this indicates that a significant positive relationship exists between both the variables.
Table8:Variables Entered/Removed
Model
Variables Entered
Variables Removed
Method
Enter
R Square
Adjusted R Square
.581a
.338
.328
950.94997
Table10:Anova
Model
1
Sum of Squares
Df
Mean Square
Sig.
Regression
3.227E7
3.227E7
35.682
.000a
Residual
6.330E7
70
904305.848
Total
9.557E7
71
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Table11:Coefficients
Unstandardized Coefficients Standardized Coefficients
Model
1
(Constant)
Std. Error
1905.170
394.480
5.682
Beta
.581
Sig.
4.830
.000
5.973
.000
Variable:NSE_Index_Monthly_Avg
DISCUSSIONS
R2 is a statistic that will give some information about the
goodness of fit model. In regression, the R2 coefficient of
determination is a statistical measure of how well the
regression line approximates the real data points. An R2of
1.0 indicates that the regression line perfectly fits the data.
The range of R2 is from 0 to 1. In model 1 of inflation
coefficient of correlation is .291. It shows a low positive
relationship between crude oil prices and inflation rate in
India. R2 indicates one unit change in crude oil prices
leads to 4.4% change in inflation. The impact of crude oil
prices on inflation is significant. Here the level of
significance is .04 proving the relationship between
inflation rate and crude oil prices.
In model 2, coefficient of correlation (R) is .581 indicating
that a moderate positive correlation exists between crude
oil prices and NSE index. R2 is 33.8%. And the
significance level is 0 in the model 2 that shows that there
is relationship between both the variables which implies
that there is relation between independent and dependent
variables. Value of t test is also significant which is 5.173
that is also significant proving the relationship between
two variables.
CONCLUSION
An effort has been made in the study to check out the
impact of crude oil prices on NSE (national stock
exchange) and on inflation in India, over the period of 6
years that is (2007-2013). Indian economy is a developing
economy and to meet its major crude oil requirement,
India has to major rely on imports. Central bank across
Asia and in India also has raised rates many times to fight
against inflation. The data presented above indicates that a
increase in crude oil price results in increase of NSE
index, in June 2007, NSE index gained 6.59% as a result
of 14.54% increase in crude oil prices. The figures of
April 2009, May 2011 and March 2012 also show the
similar trends. The data collected for inflation and crude
oil prices also indicate that when crude oil prices move up
inflation rate also moves in the same direction in India.
Correlation and regression analysis has been put on to
unveil the relationship, and the test exposes a positive
correlation between crude oil prices and NSE (national
stock exchange) and in regression model to the coefficient
is significant. Another relationship between crude oil
prices and inflation is also explored, and the result of
which indicates a moderate relationship between two
variables.
REFERENCES
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