International Journal of Latest Technology in Engineering, Management & Applied Science (IJLTEMAS) Volume V, Issue XII, December 2016 | ISSN 2278-2540 www.ijltemas.in Page 59 “Monetary Policy Effect on Nifty 50 and Sectoral Indices – A Study from Indian Stock Markets” Prof. Mrityunjaya B Chavannavar 1 , Dr. S. C. Patil 2 , Ms. Melita Simoes 3 1 Assistant Professor, Chetan Business School, Hubli. 1 Associate Professor, Dept. of Management Studies, RCU Belagavi. 3 MBA Final Year, Chetan Business School, Hubli. Abstract: The Monetary Policy makes use of various instruments like Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo Rate, Reverse Repo Rate and Bank rate to control the money supply of the country. Nifty 50 & Sectoral indices volatility is influenced by the monetary policy of RBI. The monetary policy may have a favorable or adverse impact on the stock market. Any changes in the monetary policy has a direct impact on stock market returns and overall economy of the nation. The stock price tends to fluctuate before and after the monetary policy is announced. It is important to understand the effect of selected monetary instruments changes on Nifty 50 & sectoral indices. This study aims to understand whether the monetary policy and stock markets move hand in hand or in opposite directions and which sector is highly influenced by the monetary policy. The study revealed that majority of the variations in Nifty 50 & sectoral indices are explained jointly by variations in monetary tools and has a strong linear relationship. There exists a moderate linear relationship between changes is the monetary policy tools and Nifty Energy movement. Majority of the variations in Nifty Energy are unexplained jointly by variations in monetary tools. It is observed that the changes in the monetary policy tools effected the Nifty 50 movement in the long term. In the short term no significant difference is observed in Nifty 50 movement. I. INTRODUCTION onetary Policy is an indispensable tool of economic management. Monetary Policy is a policy which employs the central bank’s control over the supply, cost and use of money for achieving objectives of economic policy namely achievement of domestic stability, balance of payment equilibrium, full employment and growth, curbing inflation and ensuring that government deficits are financed at low interest rates. The Monetary Policy makes use of various instruments like Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo Rate, Reverse Repo Rate and Bank rate to control the money supply of the country. Stock market is the aggregation of buyers and sellers of stocks which is highly susceptible to change and react to economic conditions and hence regarded as a “Barometer of the Indian Economy”. Stock Market reacts depending on the investor’s interpretation of economic activities and serves as an indicator of social mood. The key interest rates of RBI and stock market volatility depends on the monetary policy rates. NIFTY 50 Index is National Stock Exchange of India’s benchmark stock market index for Indian equity market. NIFTY 50 covers 13 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio. The Nifty 50 Index represents 65% of the free float market capitalization of the stocks. NIFTY volatility is influenced by the monetary policy of RBI. Any fluctuation in the monetary policy has a direct impact on stock market returns and overall economy of the nation. The stock price tends to fluctuate before and after the monetary policy is announced. The monetary policy may have a favorable or adverse impact on the stock market i.e., Nifty is considered as an index depending on how market players analyze it with reference to their expectations. Monetary policy can hence help in achieving economic growth by (i) minimizing fluctuations in the prices and business activities and (ii) providing economic environment conducive for achieving high levels of savings and investments. II. LITERATURE REVIEW Sherman J. Maisel (1968) found that Monetary policy appears to influence the economy primarily through its impact on spending in particular sectors. Spending is influenced through the price, availability, and distribution of credit. Higher interest rates resulting from an increased demand for funds, and/or a slower rate of expansion of the supply of funds, and disintermediation brought contraction in investment. He concluded that movements in the flow of funds among financial institutions and markets may create impacts on spending as great as or even greater than do changes in the general availability and price of credit. M