The impact of oil prices on stock prices and other macroeconomic variables in India: pre‐ and post‐2008 crises

• DOI: http://doi.org/10.1111/opec.12129
• Date: 01 September 2018
• Published date: 01 September 2018

The impact of oil prices on stock prices and

other macroeconomic variables in India: pre-

and post-2008 crises

Vishruti Gupta* and Pooja Sharma**

*PhD Scholar, Department of Economics, Delhi School of Economics, University of Delhi, Delhi - 110007,

India. Email: vishruti@econdse.org

**PhD Scholar, Energy Studies Program, School of International Studies, Jawaharlal Nehru University,

Delhi, India.

Abstract

This paper attempts to explore the impact of oil prices on stock prices, exchange rates, and

inflation rates in the Indian economy for the time period May 1996 to April 2017. This relationship

will be investigated for pre- and post-2008 crises, with an aim to explore the linkages between oil

prices and stock prices. The financial crisis of 2008 affected the Indian economy through the

external sector, while the rise in interest rates owing to pressure on domestic liquidity eventually

affected exchange rates. The study concluded that there exists a structural break in the year 2008

and that there is a long-term relationship between the concerned macroeconomic variables.

Finally, the theoretical hypothesis that oilprices affect stock prices hasbeen confirmed by considering

India as a case study. The study concludes that there exists a structural break in 2008 crises.

1. Introduction

Energy is a prerequisite for an economy to grow and develop. Each economy needs to be

energy secure in order to grow. Some of the countries are energy abundant and

independent in terms of continuous supply of energy at reasonable prices while some are

energy dependent, relying on other sources to meet their requirements. Oil is a crucial

part the of total energy requirement of the economy. As a result any change in price of

oil directly has a significant impact on the economy.

Owing to lack of oil field discoveries in the recent years, the increase in cost of

production of crude oil has inflated the crude oil prices globally. Such an increase in oil

prices has an adverse impact on the economy depending on the fact if the country is

energy dependent in terms of oil imports and generally non-oil-producing countries fall

under this category.

In this last decade along with steep fluctuations in oil price, stock prices have also

been falling. Therefore, the relationship between oil prices and stock prices needs to be

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