With the trend of operating in a global economy, interconnectedness is an integral element of this approach because economies, businesses, and industries are now interdependent, causing the integration of financial markets to increase efficiency. This has encouraged foreign inflows into developing economies like India. A positive trend in the stock market, such as GDP growth, boosts investors’ confidence, thereby increasing stock prices. However, on the downside, when there is volatility regarding stock market corrections or currency fluctuations, disruptive ripples are created in the stock market.
Since Indian companies are operating across borders in varying continents and different time zones, share market events in one geographical region may significantly impact stakeholders in the other. That is why it is vital to understand how global factors affect the performance of the Indian stock market. Let’s delve into understanding it with the following pointers:
- The Dollar effect: The Dollar being the major determinant of stock markets worldwide, has an inverse relationship with Indian stock prices because as soon as it falls, Foreign institutional Investors start pouring their assets into the Indian market, hoping to reap huge benefits. However, when Dollar starts soaring up, FII outflows become evident, causing pain to Indian investors.
- US treasury bonds: Although US treasury bonds are considered the safest financial instruments across the world, allowing massive inflows of investors, the interesting twist is that it also has an inverse relationship with the stock markets. Since businesses incur borrowing costs and interest rates for investing, they discourage future expansion plans and cut down on potentially profitable margins. This ultimately results in the downfall of equity markets, which is why investors view this negatively as investors tend to shift capital from risky assets (equities) to safe assets (digital gold or SGBs), declining the stock market performance.
- Crude oil prices: India, the major importer of crude oil, consumes more than 85% of the country’s oil. Several industries in India, such as refineries, lubricants, tires, and logistics, are negatively affected when the international prices of crude oil increase. India’s trade deficit is adversely affected, increasing the costs of related products, thus causing a dent in corporate profitability and eventually growing inflation. So, it is safe to say that the Indian equity market is inversely related to crude oil prices.
- SGX Nifty: The stock index of the Singapore market indicates the performance of the Indian stock market the next day. Hence it is a futures contract based on the Nifty 50 index, a benchmark for the Indian stock market. Therefore they help their investors by providing early indication so that they make informed investment decisions.
- Nasdaq index impact: It is one benchmark highly considered by Indian IT companies as it is the index dedicated to technology stocks. Hence Indian companies extract huge revenue from the US markets, of course, the ones with a prominent presence in the States. When Nasdaq performs well, Indian IT stocks grow in demand and vice-versa.
So, these were just some of the global factors that impacted the Indian stock market. Suppose you are looking forward to making the most of your demat account by extracting major wealth from the volatile ocean of the Indian stock market. In that case, it is always advisable to equip yourselves with all the relevant information and necessary knowledge.