Volatility in Indian Stock Market: Transmission from Domestic Sectors

Abstract

This study identifies some volatility transmission channels for the Indian stock market in the domestic sectors. Capital goods sector has remained the most important explanator and propagator of shocks in SENSEX return, and this shock will have relatively more influence on SENSEX variability. Hence, market to sector volatility transmission has been more prominent in case of BSE SENSEX than BSE 200, while sector to market volatility transmission has been more significant in case of BSE 200. So far as inter-sectoral volatility transmission is concerned, most of the sectoral volatility is coming from the variability in capital goods sector and consumer durables sector. Moreover, shock to the traditional sectors such as capital goods and consumer durables sector is likely to bring about more changes in the market as compared to other sectors. Other sectors, particularly the IT sector, have only a mild, almost insignificant impact on market volatility and transmit very little of its volatility to other sectors. Moreover, its variability is hardly influenced by that of market and other sectors. Hence, even in this era of globalization, IT sector remains a secluded sector, while traditional sectors remain the most important ones.