Exploring The Nexus: A Systematic Literature Review On The Performance Of Sustainability Indices In The Indian Stock Market And Their Interplay With Macroeconomic Variables.

Abstract

Purpose –

This research paper presents a systematic literature review, providing an in-depth overview of the dynamic landscape of sustainability indices of the Indian stock market and exploring its intersection with that of macroeconomic variables. Sustainability indices have gained prominence as valuable tools for assessing the environmental, social, and governance (ESG) performance of listed companies and have become integral for investment decision making processes. As India undergoes economic growth and strives for sustainable development, understanding the sustainability indices becomes crucial. The study systematically reviews a diverse range of scholarly articles and research papers published in reputable journals.

Methodology and approach –The sources for this study were obtained from databases including Scopus and EBSCO. The key words used to search the articles were “Macroeconomic variables” and “Stock market” or “Stock market performance”. The findings revealed a substantial increase in the volume of scholarly work within the field of stock market research. The analysis was conducted for each macroeconomic variable. Due to the large number of relevant articles, the authors initially reviewed the titles and abstracts of all publications to determine their relevance. The selected papers, covering the period from 1972 to 2023, were then assessed and organized using Excel.

Findings – Research on green investing and its financial implications has yielded mixed outcomes. Indian studies, such as those on the BSE-GREENEX and CARBONEX indices, highlighted both outperformance and investor skepticism. The study concludes that GDP exerts a positive effect on the stock market performance. Interest rates, by contrast, demonstrate a negative effect. Variables like inflation, money supply, and GDP show consistent impacts on both sectoral and broad market indices, whereas the influence of other macroeconomic indicators tends to vary across sectors.

Research Limitations and Scope for Future Research – While this review offers an in-depth overview of the performance of sustainability indices and its relationship between multiple macroeconomic indicators, further research is warranted. There is a extensive scope for future studies focussed on  behavioural, thematic, strategy-based, and sector-specific indices. There is also potential to incorporate additional variables—such as bank deposit growth, nonperforming assets, the consumer confidence index, and investor sentiment—using high-frequency data over extended time periods. The paper highlights the importance of expanding inquiry into mid-cap, small-cap, and other market-specific indices.

Practical Implications –This study provides useful understanding for investors, academicians, and practitioners in economics and finance, by clarifying the impact of macroeconomic variables in shaping stock market trends. It may assist in developing more informed portfolio diversification strategies, particularly when analysing sector-specific indices. Additionally, the findings offer practical guidance to mutual funds and pension funds in managing risks and optimizing equity allocations.