How profitable is the Indian stock market?

• Trading strategies are used to test the profitability of the Indian stock market.
• It is found that investing in some sectors is relatively more profitable.
• Short-selling allows more profits to be made.
• Market returns predict sectoral returns.
• There is evidence of the gradual information diffusion hypothesis.

In this paper, using a range of technical trading and momentum trading strategies, we show that the Indian stock market is profitable. We find robust evidence that investing in some sectors is relatively more profitable than investing in others. We show that sectoral heterogeneity with respect to profitability is a result of the gradual diffusion of information from the market to the sectors. Specifically, we show that while the market predicts returns of sectors, the magnitude of predictability varies with sectors. Our results are robust to a range of trading strategies.