Sectoral Drawdown Synchronization and Recovery Dispersion During Market-Stress Episodes: Evidence from India

This study examines whether market-wide stress increases synchronization across Indian equity sectors and whether the severity of sectoral drawdowns is associated with subsequent recovery duration. Using daily data for six major NIFTY sectoral indices and India VIX from January 2016 to December 2025, the analysis distinguishes between broadly elevated market stress and major stress episodes. Sectoral synchronization is assessed using pairwise return correlations and 20-day rolling correlations, while peak-to-trough drawdowns and recovery durations are measured for identified major stress episodes. The results show that average pairwise sectoral correlation increases from 0.363 during non-high-stress periods to 0.591 during high-stress periods, representing an increase of approximately 62.6%. Rolling sectoral synchronization is also positively associated with India VIX, and this relationship remains statistically significant using Newey–West standard errors. Although sectors display considerable variation in observed drawdown severity and recovery duration, cross-sector differences are not statistically significant. In contrast, drawdown magnitude is strongly and positively associated with recovery duration (Spearman’s ρ = 0.722, p < 0.001), with the relationship remaining robust after excluding recoveries interrupted by subsequent stress episodes. The findings indicate that market stress reduces the diversification benefits available across sectors by increasing common movement, while the depth of sectoral losses provides important information about the time subsequently required for recovery. By jointly examining synchronization, drawdown severity and recovery duration, the study provides an integrated perspective on sectoral resilience during market-stress episodes in the Indian equity market.