MODELING VOLATILITY SPILLOVERS BETWEEN INR DEPRECIATION AND SECTORAL STOCK INDICES IN INDIA: A BEKK-GARCH APPROACH

The weakening of the Indian Rupee (INR) often stirs up turbulence in financial markets, but its impact isnt felt equally across all sectors. Unlike earlier studies that focus mainly on overall market indices, this research takes a closer look at how specific industries react to currency depreciation. Using a bivariate BEKK-GARCH (1,1) model, the study analyzes the volatility link between the USD/INR exchange rate and five major sectoral indices: BSE IT, Auto, Oil & Gas, Capital Goods, and Consumer Durables. The findings reveal clear asymmetries export-driven sectors like IT experience strong two-way volatility interactions with the exchange rate, while import-heavy sectors such as Auto and Oil & Gas face one-way spillovers, largely due to rising input costs. All five sectors show high volatility persistence, meaning once market shocks occur, their effects tend to linger. These insights highlight the importance of targeted risk management and sector-specific policy approaches when addressing currency-related uncertainties. By unpacking these nuances, the study adds valuable direction for policymakers, investors, and businesses navigating a volatile currency landscape.