Volatility and Risk Analysis of Sectoral NIFTY Index: An Empirical Analysis of Geometric Brownian Motion and Monte Carlo Simulation
Jhumur Sengupta
*
Dinabandhu Andrews College, Kolkata, West Bengal, India.
*Author to whom correspondence should be addressed.
Abstract
The global economy and markets face geopolitical uncertainty and trade challenges. Ongoing conflicts between Russia and Ukraine, as well as between Israel and Gaza, along with tensions between Israel and the US over Iran, have created uncertainties about economic growth. Increasing political tensions worldwide, tariff fluctuations, energy risks, and climate change have prompted the central bank, which remains cautious, to shift its policy approach from structural to tactical responses to shield the economy from geopolitical turmoil. The Indian stock market is highly susceptible to fluctuations in economic conditions. In June 2025, the National Stock Exchange reported that India faces a lack of macroeconomic stability. The paper attempts to analyze the risks and volatility of NIFTY sectoral indices in India. This paper employs geometric Brownian motion to forecast seven sectoral indices. The sectors included in the analysis are NIFTY Auto, NIFTY Energy, NIFTY FMCG, NIFTY Pharma, NIFTY PSU Bank, NIFTY Private Bank, and NIFTY IT. The daily returns of sectoral index close prices are examined from January 1, 2018, to July 8, 2025, using a calendar year date format. The paper assumes that the sectoral indices' closing prices follow a Brownian motion process. The results showed that volatility exists in nearly all sectoral indices over the next 100 trading days. The maximum potential loss for investors across different sectors is relatively lower in the pharma, PSU Bank, and Metal sectors, as indicated by VaR and CVaR values.
Keywords: Financial forecasting, investment decisions, geometric Brownian motion, sectoral index, forecasting and simulation