Bidirectional Causality in Sectoral Indices and Nifty 50: A Python Based Model

This paper aims to analyze the linkage between the National Stock Exchange of India (NSE) listed - NIFTY 50 and its 9 Sectoral indexes (namely NIFTY Financial Services, NIFTY FMCG, NIFTY Consumer Durable, NIFTY Infrastructure, NIFTY Healthcare, NIFTY Oil & Gas, NIFTY IT, NIFTY Pharma). Historical Data of Nifty 50 and sectoral indices have been taken from the NSE database for a span of five years from 31st December 2017 to 31st December 2022. Various tools are used to examine data like M -S Excel, M -S Word, and Python. To check the stationary of the time-variant series, Augmented Dicky Fuller Test has been applied. The Granger causality test by Clive Granger has been employed to explain the short-term relationship between the Nifty 50 and sectoral indexes. The results show that there exists bidirectional, unidirectional, or no relation between the Sectoral indexes and benchmarking Index. The way the sectoral Indexes influence the Nifty 50 would help the investors, policymakers, and portfolio managers in building efficient decision processes regarding portfolio allocation.