AI-augmented structural VAR analysis of domestic institutional investors and macroeconomic dynamics in India

Domestic investment plays a crucial role in expanding and enhancing the depth of Indian financial markets. The role of institutional investors becomes important in stock markets as they are one of the major players. Their investment decisions are influenced by various domestic, economic, and political trends. Domestic institutional investors (DIIs)acted as cushions during major financial crises whenever hot money was wiped out by FIIs, leaving the market dry. The result of SVAR analysis focuses on the impact created by unanticipated shocks in the macroeconomic variable and investments of DII (Banks, Insurance companies (INSU), Mutual Funds (MF), and development financial institutions (DFI)). The results are in line with intuitive economic reasoning. DII, being the market players, takes cues from the macroeconomic variables. These results support the theory of information response.