Sensitivity of Indian industrial portfolios’ return toward exchange rate changes

The study analyzed the contemporaneous and dynamic relationship of the Indian Stock market and various industrial indices with Rs/$ exchange rate. For that purpose, daily data of SENSEX, twelve industrial indices to represent the various industries and five other size based indices have been taken. To ascertain contemporaneous relation bi-variate regression has been applied to discover that SENSEX, all sized based indices and Bankex (among the various industrial indices) have been significantly affected by the exchanges rate changes. When study tried to establish lead-lag relation of various indices with exchange rate changes by using the VAR model, all sectors, except a few, found significantly affected by the exchange rate changes. This dynamic reaction could have happened due to high foreign portfolio investment in Indian stock market.