IMPACT OF MACROECONOMIC AND FIRM-SPECIFIC FINANCIAL INDICATORS ON NBFC STOCK RETURNS IN INDIA

Abstract

The Non-Banking Financial Companies (NBFCs) sector plays a crucial role in India’s financial system by complementing the banking sector and extending credit to underserved segments. Given the sector’s sensitivity to both internal financial health and external economic conditions, understanding the determinants of NBFC stock returns is vital for investors and policymakers. This study examines the joint impact of macroeconomic variables and firm-specific financial performance indicators on NBFC stock returns in India. Using panel data from selected listed NBFCs over a ten-year period, the study incorporates key macroeconomic variables such as interest rates, inflation, exchange rates, and GDP growth, along with firm-level indicators including profitability, capital adequacy, asset quality, and liquidity ratios. Panel regression techniques are employed to analyze direct effects, while interaction terms are used to test the moderating role of macroeconomic factors on firm-level financial performance. The findings reveal that both macroeconomic and firm-specific variables significantly influence NBFC stock returns, with interest rates and asset quality emerging as dominant drivers. Moreover, macroeconomic conditions significantly moderate the relationship between firm-specific financial indicators and stock returns. The study contributes to existing literature by offering sector-specific insights into NBFC stock behavior and provides practical implications for investors, regulators, and financial managers.