Financial News Reports and Their Effect on Indian Stock Market Perception

Abstract

This study explores the influence of financial news sentiment on Indian stock market perceptions, addressing a critical gap in region-specific research within the field of behavioral finance. By analyzing 1,200 financial news articles published in The Economic Times over six months (January–June 2024), the research employs VADER sentiment analysis to evaluate the polarity (positive, negative, or neutral) of news reports and correlates these findings with stock market indices (Sensex and NIFTY). The results reveal a significant positive correlation between sentiment scores and market performance, with months of higher positive sentiment aligning with market uptrends. Positive narratives, such as corporate earnings and economic growth, spurred increased investments (64%), while negative sentiment tied to inflation and geopolitical tensions led to cautious investor behavior (62% reducing investments). Sector-specific sentiment analysis highlights varying sensitivities, with IT and pharmaceutical sectors benefiting from positive sentiment and energy and banking sectors facing challenges due to global and regulatory pressures. The findings emphasize the critical role of media narratives in shaping investor sentiment and highlight the need for balanced reporting and improved financial literacy. Policymakers and regulators can leverage these insights to enhance market stability, while investors are encouraged to mitigate emotional biases through informed decision-making. This study contributes to the growing literature on media influence in financial markets, offering actionable insights for various stakeholders in the Indian financial ecosystem.