SECTORAL SENSITIVITY OF INDIAN EQUITIES TO MACROECONOMIC INDICATORS: A COMPARATIVE STUDY (2020–2026)

Abstract

From January 2020 to March 2026, India’s equity markets went through one of the most tumultuous and structurally consequential macroeconomic periods in modern history. The COVID-19 pandemic squeezed GDP by 7.3 percent in FY21, compelled the Reserve Bank of India to slash the repo rate to a historic low of 4.00 percent and fundamentally re-ordered sectoral performance trajectories. The recovery that followed was not uniform, but starkly bifurcated: tech-led sectors boomed on the back of global digital adoption, banking stocks languished with high non-performing assets, energy companies swung wildly with crude prices, and consumer goods companies quietly absorbed input cost shocks. In the present study, we try to measure the effect of five macroeconomic variables, RBI repo rate, CPI inflation, USD/INR exchange rate, Index of Industrial Production (IIP) growth and Brent crude oil prices on the monthly equity returns of four NSE sectoral indices, Nifty Bank, Nifty IT, Nifty FMCG and Nifty Energy for this 75-month time span. The analytical framework employs descriptive statistics, the Pearson correlation analysis, simple linear regression and time-series trend analysis on a secondary dataset obtained entirely from official repositories. The results confirm that macroeconomic sensitivity at the sectoral level is large and economically meaningful. The banking sector was found to be the most sensitive sector to the interest rate. The highest correlation was found between the repo rate and Nifty Bank among all the sector-variable pairs. The IT sector had the most pronounced response to exchange rate movements, reflecting the structural dominance of dollar-denominated revenues among its major constituents. FMCG was relatively macro resilient during periods of economic contraction, but vulnerable during periods of high CPI inflation, mainly through the cost side channel. The performance of the energy sector was mainly driven by the price movement of crude oil with the commodity shock of Russia-Ukraine in 2022 resulting in the largest multi-month swing of Nifty Energy returns during the study period. v From a policy perspective, the results suggest that the asymmetric sectoral costs of monetary tightening cycles should be explicitly factored in the communication strategy of the Reserve Bank of India. For investors, the sector-macro sensitivity profiles identified in this study provide a practical basis for macro-driven tactical allocation across equity segments. The project is divided into six substantive chapters. Chapter 1 gives the background and the rationale of the research. Chapter 2 profiles the four sectors and describes their structural characteristics. The relevant academic literature is reviewed in Chapter 3. Chapter 4 describes the methodology and data sources of the research. Full data analyses, statistical outputs and interpretations are presented in Chapter 5. Chapter 6 concludes the findings and provide recommendations for investors, policy makers and future researchers.