The global economy always affects the Indian stock market. Stock prices change every day and in every moment as per the international market force and news flows. Indian stock market faces a lot of volatility driven by news and events in the global market and affects a lot by the global economy.
Indian stock market and Global Economy
There are so many crucial factors in the global economy that makes Indian stock market volatile.
A rise in global commodities prices
Rising commodity prices might lead to differential effects depending on whether the country is a net importer or exporter of commodities. An increase in commodity prices may have an impact on real incomes. It also creates a possibility of increased unemployment. In India, a hike in global commodity price creates an adverse effect on the trade. Because India is a net importer, but countries exporting commodities will see a rise in their terms of trade and will benefit from increasing export revenues.
News/rumors related to the economic recession in USA and UK
Indian companies have major outsourcing deals from the USA and UK. India’s exports to the USA/UK have also grown by years. Again Due to the recession, the worries for exporters will rise as rupee strengthens further against the dollar.
Volatility in global crude oil prices
The increased prices of oil in international market can have both positive and negative impact on the global platform, but in case of India, which fulfills the big part of its energy requirements from imported oil, has always had a negative impact on the stock market. Therefore, Jump in oil prices adversely affects the Indian stock market and the earning of investors.
Global Trade War
The global Trade war is always bad news. Nowadays Global Trade war becomes a nightmare for Indian investors. The Indian economy obviously, affected by the combined effect of a global trade war and the US Federal Reserve’s monetary tightening cycle.
Dependencies on Foreign Investment
We are witnessing fast economic growth for last few years. As a result, a large amount of fund flows into the Indian market from across the world. Hence, those foreign funds become large momentum players and their activity in the stock market creates huge volatility.
There are different types of foreign investments –
1. Foreign Institutional Investment (FII )
2. Foreign Direct Investment (FDI)
3. Foreign Portfolio Investment (FPI)
These foreign Investors make their investment decisions in Indian stock market depending on development/events in their local markets. Therefore, the Indian stock market is becoming more integrated with the movement of the global market. So, it becomes necessary to track global events and global market shifts very closely.
USA economy is the largest economy in the world. Therefore, any negative news triggered by the US markets as well as in any international market triggers a tsunami in global markets as well as in the Indian stock market. Most of the Indian companies are directly linked to the US regarding outsourcing and revenue. IT and Pharma are two are the biggest sectors that do business in the US and Europe.
An enormous portion of the revenue of many Indian companies coming from foreign markets and this is growing every year. So, share price actions of these companies are more likely to be affected by the development of the world economy. Mostly, in this way, the global economy affects the Indian stock market.
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