This disclosure relates generally to categorical time-series clustering. In an embodiment, the method for categorical time-series clustering for categorical time-series associated with distinct subjects obtained from sensors. Based on the categorical time-series, the subjects are clustered into clusters by using a Markov chain model. Clustering the subjects include assigning each subject to a cluster. The subjects are assigned to the clusters by determining cluster-specific transition matrices based on a transitional probability of the subject's transitioning between states. A semi-distance function is constructed for each cluster-specific transitional matrix between the states at multiple time instances, which us indicative of a conditional probability of movement of the subject between the states at different time instance. Using an expectation maximization (EM) model, one or more latent variables of each of the cluster-specific transitional matrices are obtained to determine a likelihood of association of the subject to the cluster.