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People who are completely invested in the indian stock market are eager to learn about the international market’s effect on it. Living in an interconnected world, you know how a slight imbalance could affect the nation’s economy and stock market. This is primarily because of a cross-border investment or mutual trade between countries. Worldwide financial markets are interconnected, and hence, they keep on impacting each other, directly or indirectly. This post will highlight how international market affect indian stock market.
Factors influencing the Indian stock market
Businesses no longer operate in isolated silos in this age of globalisation. Companies operate, finance, source, and supply chains globally, and some are even listed on international stock markets. International market influences would inevitably impact the Indian stock market in such a circumstance.
Let’s examine how international market affect indian stock market:
Global monetary policies
The nation’s central banks adjust interest rates and monetary policies on a regular basis to manage inflation and maintain stability and growth. These policies have a significant impact on how liquidity circumstances are shaped globally, particularly for developed economies.
For example, the domestic borrowing rate rose in response to the US Federal Reserve’s March 23 rate hike. Such increases in interest rates tend to make local investment alternatives more alluring to international market investors than risky ventures into developing economies such as India. As a result, they frequently leave developing economies that provide comparatively lower returns, which has a detrimental effect on India.
Global fiscal policies
The laws that control government spending and income (taxes) are known as fiscal laws. Governments’ global fiscal policies can affect interest rates, tax rates, relative trade powers, currency rates, and other factors affecting stock market, economies and markets worldwide.
For instance, Chinese goods would probably become less competitive if the US increased duties on Chinese imports. This might increase manufacturing in other nations, like India, which would benefit those nations’ markets.
These are situations that may affect international market relations, world security, or the balance of power among states. Examples of these situations include international hostilities, territorial disputes, health crises, treaties or agreements, sanctions, etc.
As you may know, the COVID-19 epidemic and the conflict between Russia and Ukraine caused a setback for the Indian markets as well. Within the first 20 days of the conflict in FY21, the BSE Sensex fell nearly 4,000 points!
Raw materials or core goods that are brought or sold are referred to as commodities. Products related to agriculture (like grains), energy (like oil), metals (like gold), etc. Typically, they are exchanged on specialised market exchanges.
Given that India is a significant importer of goods like metals, oil, and other commodities, rising commodity prices would likely have a negative impact on the profitability of businesses that use these items as raw materials, which will likely result in a drop in stock prices.
Conversely, India is a significant exporter of several agricultural goods as well as textiles. Elevated commodity costs for these goods are probably going to boost these companies’ profits, which will boost their stock values.
Higher inflation might also result from rising commodity prices in India, which would further reduce buying power and depress the mood of the market.
In addition to political stability and geopolitical events that can alter the supply and demand of any currency, economic variables like GDP, interest rates, inflation rates, and so on can also cause fluctuations in currency exchange rates.
Let’s examine the items you may have read, such as “The Indian Rupee has weakened against the dollar and is expected to impact the market,” which states that it is now worth Rs 83 instead of ₹ 81.
Therefore, the depreciation of the Rupee is probably going to have a favourable effect on export-oriented Indian enterprises by increasing the competitiveness of their products in foreign markets. This is how foreign markets and international conflicts affect Indian stock market. On the other hand, import-dependent businesses that rely on raw materials, technology, etc., may incur more expenses if the Rupee appreciates, which is likely to have a detrimental effect.
For instance, the value of the Indian Rupee fell by 15% in 2013, from ₹ 55 in January to ₹ 65 in September. Being a nation that imports a lot, generally, this caused the NIFTY to decline along with the Rupee.
These are the market exchange rates used for currency trading. The Indian Rupee is comparatively weaker than the USD dollar, which is the strongest currency in the world. Examining the import and export activity between the two nations is essential if we are to understand the impact of the US market on the Indian market. India imports a lot of goods and services from the US; thus, importing businesses will have to pay more if the US dollar appreciates in relation to the Indian Rupee. To put it briefly, these firms’ share prices will be impacted by an increase in the exchange rate since it will decrease their profitability.
Treasury bonds and commercial papers are exchanged on the debt market. In contrast to India, where it is still in its infancy, the US market for this product is far more developed. Bond yields provide insight into how the Indian market is affected by the market. US Treasury bond rates, which can rise or decrease, have an impact on a number of stock markets, including those in Europe and Asia.
An increase in yield results in higher borrowing costs for US-based companies. This is concerning to many value investors since it will interfere with their plans for future capital expenditures (Capex). This will affect these companies’ bottom lines, which might spiral into a decline in share price that impacts the Indian markets.
News is one of the essential aspects of fundamental research in stock investing and trading. This news might be on the budget deficit, COVID-19 relief package, election results, GDP growth, inflation, etc. The international market flows made by foreign portfolio investors (FPIs), foreign institutional investors (FIIs), etc., are determined by these occurrences.
Given that these FPI and FII investments influence the Indian stock market, this is one of the critical components in understanding the impact of the US market on the Indian market.
This was all about how the US stock indexes, such as the Sensex and Nifty, were impacted by the Nasdaq, Dow Jones Industrial Average (DJIA), and S&P 500. We will now turn our attention to how the Chinese stock markets affect the Indian market. Here it is:
Among other products, the Chinese market exports a lot of medicines, car parts, and electronics to India. Similarly, China imports chemicals, steel, aluminium, iron ore, and other items. China’s domestic policies will harm its listed firms and, consequently, its stock markets, just as the US market has an impact on the Indian market. Listed Indian firms that do business with Chinese corporations would be affected. This is how foreign markets and international conflicts affect indian stock market.
The company’s stock price may increase or decrease for a variety of reasons. An investor should ideally have a well-thought-out allocation plan in place after fully comprehending the aforementioned factors affecting stock market. In the long term, it will guarantee that the investor makes the best financial choice and produces outstanding profits.
The worldwide macroeconomic turbulence that followed COVID hasn’t affected the resilience of the Indian stock market. Even the most resilient stock markets can have disruptions from time to time; thus, the Indian stock market is not immune. Equity markets are now unstable due to a number of factors affecting stock market, including persistent inflation that is at record highs, tightening monetary policy, weaker economic growth, and concerns about the possibility of a worldwide recession.
Fluctuations in the US Dollar Index can have ramifications on exchange rates, foreign institutional investment, oil prices, inflation, and market sentiment in India. Consequently, it is imperative for investors to closely monitor the US Dollar Index, as it can offer valuable insights into the prospective trends in the Indian stock market.
The correlation between the Nifty index and the US Dollar Index indicates that during periods of the latter’s strength, the former typically does not exhibit substantial upward movements. This correlation is anticipated because a robust dollar usually results in the outflow of capital from emerging markets, including India, and an influx into the US market.
Given that the Singapore Stock Exchange is prominent in India, the SGX Nifty serves as a tool to anticipate and observe the behaviour of the Indian Nifty. Consequently, the SGX Nifty plays a crucial role in influencing the Indian stock market.