Impact of NSE Market Capitalization Growth on India’s GDP Expansion (1995–2020)

Abstract

The National Stock Exchange of India (NSE) has played a transformative role in the evolution of India’s financial markets since its inception in 1992. Its rapid expansion in terms of market capitalization, turnover ratio, number of listed firms, and technological sophistication positions it as a critical institutional pillar for the country’s economic growth. This study investigates the relationship between NSE’s market development and India’s macroeconomic performance between 1995 and 2020, a period marked by liberalization reforms, globalization, and increasing institutional participation. Using a combination of secondary time-series data, correlation analysis, and economic indicators such as GDP growth rate, gross capital formation, industrial output, and investment trends, the paper examines whether the rise in stock market depth and liquidity contributed significantly to India’s broader economic expansion. Findings indicate a strong positive association between market capitalization growth and real GDP, driven by improved capital mobilization, enhanced investor confidence, and strengthened price-discovery processes. However, the results also highlight periods of volatility—such as the dot-com downturn, 2008 global recession, and 2016–2017 demonetization-GST transition—where market fluctuations temporarily weakened the relationship. The study concludes that the NSE has become a major driver of India’s economic trajectory, although its impact remains sensitive to domestic reforms and global shocks.