Are IT Stocks Driving the Indian Equity Market? A Dynamic Causality and Cointegration Study

This study examines the dynamic linkage between the Nifty IT index and the NSE Nifty 50 index using weekly data from April 2020 to March 2025. The Augmented Dickey-Fuller (ADF) unit root test reveals that both indices are non-stationary at level, with test statistics of −1.37 (Nifty 50) and −1.12 (Nifty IT), but become stationary at first difference, with significantly negative values of −9.82 and −15.63 respectively (p = 0.0000), confirming integration of order one, I(1). Johansen’s cointegration test indicates the existence of one long-run equilibrium relationship, as the Trace statistic (21.84216) exceeds the 5% critical value (15.49471) with a probability of 0.0031, supported by the Maximum Eigenvalue statistic (17.91432; p = 0.0127). Furthermore, Granger causality results demonstrate bidirectional causality between the indices, with Nifty IT Granger-causing Nifty 50 (F = 14.7826, p = 0.0002) and Nifty 50 Granger-causing Nifty IT (F = 6.9541, p = 0.0091). These findings confirm strong long-run integration and short-run interdependence, highlighting the systemic significance of the IT sector in influencing overall market dynamics in India.