Does investor sentiment affect the Indian stock market? Evidence from Nifty 500 and other selected sectoral indices

Abstract

Investor sentiment is the result of irrational speculations about the future asset values driven by the market participants. Though scholarly works on investor sentiment are evolving in both developed and emerging markets, the literature in the Indian context is relatively modest. To fill this void, the study aims to examine sentiment-return relations based on a sectoral analysis framework. The study considered Nifty 500 and sectoral indices return such as Automobile, Information Technology, Metal, Fast-Moving Consumer Goods, and Public Sector Undertakings. To measure investor sentiment a unique sentiment index (INDex) using seven indirect proxy sentiment indicators suitable for the Indian stock market is proposed. To test the framed hypothesis, the study employs Principal Component Analysis and OLS regression. The results uncover that there exists a strong significant positive sentiment effect on Nifty 500 and selected sectoral indices return. The findings assist academicians, practitioners, investors, and policymakers in enhancing their understanding of the sentiment-return nexus in the Indian stock market and thereby guide them to ensure caution while making investment decisions.

Keywords:

• Investor sentiment
• stock return
• principal component analysis
• OLS regression model
• India

REVIEWING EDITOR:

• Xibin Zhang, Monash University, Australia

SUBJECTS:

• Economics
• Finance
• Business, Management and Accounting

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Aditi N. Kamath

Aditi N Kamath is a research scholar in the Department of Commerce, Manipal Academy of Higher Education, Manipal. Her areas of interest include Finance and Accounting. Her current research focus is in the area of Behavioral Finance. She has published papers in Scopus and ABDC-listed journals.

Sandeep S. Shenoy

Dr. Sandeep S Shenoy is a Professor and Head at the Department of Commerce, Manipal Academy of Higher Education, Manipal. The author is specialized in the area of Finance and Management. His area of interest includes Finance, Sustainable Development, and Marketing. He has 21 publications in Scopus and ABDC-listed journals.

Abhilash Abhilash

Abhilash is a Senior Research Fellow at the Department of Commerce, Manipal Academy of Higher Education, Manipal. He has published papers in Scopus and ABDC-listed journals. His area of research includes Finance, Sustainability, and Corporate Governance. His current research focus is in the area of Green Bonds and Sustainability.

Subrahmanya Kumar N

Dr. Subrahmanya Kumar N is an Associate Professor at the Department of Commerce, Manipal Academy of Higher Education, Manipal. He has a keen interest in pursuing research on various aspects of Financial Management, Behavioral Finance, Management Accounting, and Cost Accounting. He has published papers in Scopus and ABDC-listed journals.