Impact of the Volatility of Indian oil prices on sectoral returns in Indian Equity Markets

Rinku Jain, Kirti Arekar and Aayesha Taherah

Theoretical and Applied Economics, 2018, vol. XXV, issue Special, 147-162

Abstract: The stock market of any country indicates the health of a country. It also indicates the confidence of the population of the country in its economy. India, being an emerging country, has exhibited a substantial rate of growth over past years. One of the parameters that determine the growth rate and health of the economy of a nation is its stock market. The aim of this research is to find the volatility in the global oil price, its impact on various sectoral indices listed on the Indian Stock Exchange. BSE SENSEX and other sectoral Indices listed on the Bombay Stock Exchange (BSE) such as BSE Realty, BSE Power, BSE Oil and Gas, BSE Metal, BSE Consumer Durables, BSE Capital Goods, BSE BANKEX, BSE AUTO, BSE Utilities, BSE telecom, BSE Information Technology, BSE Industrials, BSE Finance, BSE Fast Moving Consumer Goods, BSE Energy, BSE Basic Materials are considered to determine the impact of fluctuation of oil price in the stocks of various sectors. The index BSE SENSEX has been considered to determine the performance of the Indian Equity market with respect to the oil price fluctuations. Log normal of the daily closing prices of each of the stock indices and the oil prices have been considered to carry out the research. Techniques such as unit root test, Jarque beta test, correlation test, Granger Causality test, Impulse response and Vector decomposition test have been applied on the closing prices of indices between 1st April, 2010 to 31st December 2017 (1st Financial quarter of the year 2010, in India to the 3rd Financial quarter of the year 2017). The tests show that the average stock returns for the sectors Auto, Bankex, Basic Materials, Capital Goods, Energy, Finance, FMCG, IT, Oil and Gas, Sensex, Industrials is positive whereas for others sectors, average return is negative. Although oil is one of the largest consumers of oil in the world, its stock market returns does not depend on the fluctuation in the oil prices.

Keywords: Indian Oil Price Volatility; Impulse Response; Vector Decomposition. (search for similar items in EconPapers)
Date: 2018
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