Impact of government financial and microeconomic indicators on stock market of nepal

Abstract

This study examines the impact of government finance and macroeconomic indicators on Nepal's stock market performance, as measured by the Nepal Stock Exchange (NEPSE) index. Using 15 years of secondary data from 2010 to 2024, sourced from Nepal Rastra Bank and NEPSE, the research employs a correlational research design to investigate the relationships between fiscal variables and macroeconomic factors with stock market dynamics. The study utilizes descriptive statistics, Pearson correlation analysis, and multiple regression techniques through SPSS to analyze the data. Results reveal strong positive correlations between NEPSE and key variables: Broad Money (r = 0.914), Private Sector Credit (r = 0.904), Domestic Credit (r = 0.865), and Total Revenue/Expenditure (r = 0.774). Conversely, Inflation Rate shows a significant negative correlation (r = -0.611). The regression analysis for government finance variables explains 80.9% of NEPSE variation (R² = 0.809), with Total Expenditure, Recurrent Expenditure, and Total Public Debt emerging as significant predictors. For macroeconomic variables, the model explains 86.2% of NEPSE variation (R² = 0.862), with Broad Money and Inflation Rate being statistically significant. The findings confirm that both fiscal and monetary policies substantially influence Nepal's stock market performance. Liquidity availability, government spending patterns, inflation control, and debt management are identified as key drivers of market movements.

Keywords: Government Finance, Macroeconomic Indicators, Stock Market Performance, Nepal Stock Exchange, Inflation Rate