India’s equity market has matured into one of the more interesting venues for stat-arb research. Where the inefficiencies still live, and how to think about them.
Indian equities have grown into a deep, liquid, electronically-traded market with a sophisticated derivatives layer and rising institutional participation. They have also retained pockets of inefficiency that have largely disappeared in developed markets — a function of segmentation, retail-driven flow and the relative scarcity of well-capitalised statistical arbitrage capacity.
Where the edges live
Sectoral pairs within Nifty 500 names continue to show mean-reverting spreads on horizons of days to weeks. Index-inclusion effects produce short-horizon liquidity demand around rebalances. Earnings drift in mid-caps is meaningfully larger than in the US large-cap universe.
Practical considerations
Position sizing in mid-caps is the binding constraint. Liquidity is concentrated in the top names; stat-arb capacity in the long tail is limited. Short selling is workable in F&O names but logistically harder in the cash market. Cost models must be calibrated locally, not borrowed from developed-market literature.
FAQ
Is stat-arb viable for non-domestic capital?
Yes, with careful attention to currency hedging, FII flow taxation and operational latency. Many global multi-strategy funds run dedicated India sleeves.