Existence of lead-lag relationship among sectoral indices: evidence from the Indian capital market

The study examines the lead-lag relationship among six sectoral indices of the Indian capital market. The Granger causality test reveals that unidirectional causality originates from oil and gas sector index to the auto, IT, financial service, and bank sector indices; similarly, the FMCG sector index causes variation in the auto, financial services and banking sector indices. The IRF and VDC analysis also confirm these findings of the Granger causality test. Among all six sectoral indices, oil and gas index is leading, and the financial services index is lagging in the Indian capital market. Investors should study the behaviour of the oil and gas index to maximise return and decrease risk, as it is dominating the other indices. The evident lead-lag relationship among the sectoral indices would assist the investors in portfolio diversification considering different sectors.