Abstract. Purpose: This study attempts to explore the relationships among stock market, investor sentiments and economic activity in Indian context. The study investigates the relationships between the Indian stock market prices (NSE Nifty 50; NSE 100 and NSE 500) and significant macroeconomic variables, along with market expectations measured by Volatility Index (VIX).

Design/methodology/approach: Monthly time series data spanning from March 2009 to March 2017 has been used. The unit root test for stationarity, ARDL bound test for co-integration and Granger Causality have been employed to study the short run and long run dynamics.

Findings : The findings of the study confirm the existence of co-integration among the variables, indicative of a long-run relationship. The long-run coefficients suggest Indian share prices are influenced positively by FIIs, Volatility Index and Inflation and negatively by Crude Oil Prices, Gold Prices and Exchange Rate. Money supply, Call Money Rate, Gross Fiscal Deficit and Index of Industrial Production prove to be insignificant in affecting the stock prices for all three indices. In Granger causality sense, it was found that the stock prices Granger Cause Crude Oil, Exchange Rate and Industrial Production for all three indices. It was also found that Exchange Rate and VIX Granger cause stock prices for NSE50 and NSE100. But for NSE500, the causality runs from stock prices to VIX.

Originality/value: This study emphasizes the impact of macroeconomic variables and investor sentiments on the stock market in a developing economy.

Keywords: macroeconomic variables, Granger causality, co-integration, stock market, investor sentiment.