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Looking at the recent meltdown in Indian stock markets, one will accept the fact that India is exposed to global threats that are mounting day by day. And that's how it has been in the past as well. Any threat in the global economy or volatility in global markets tends to have a ripple effect on the Indian markets.
So far, 2016 has been quite negative for the Indian stock markets. It has made investors fearful. Here are some of the global factors impacting the Indian markets:
In its recent testimony, Federal Reserve chair Janet Yellen said the central bank will follow a path of gradual policy tightening. She also stated that the bank is studying the feasibility of pushing short-term interest rates into negative territory should it need to give the economy an added boost. Yellen also triggered concerns that tighter credit markets, volatile financial markets, and uncertainty over Chinese economic growth had raised risks to the US economy. All of the above factors suggest that the Fed is worried about the global economic woes. And this has spooked the markets across the globe.
Crude oil prices have witnessed a severe crash. Recently, the International Energy Agency (IEA) warned that the supply glut would prevent any short-term price rebound. It also lowered its 2016 demand forecast. The agency pointed out that supply will increase during most of 2016 as declines in US output take time and OPEC is unlikely to cut a deal with other producers to reduce ballooning output. This suggests that low crude oil prices are here to stay for a while.
The eurozone is again showing signs of trouble. Recently released data showed that the eurozone grew by a meagre 0.3% in the final quarter of 2015. Further, seasonally adjusted industrial production in Europe fell by 1% in both the euro area and the wider European Union of 28 member states in December 2015. This was as against 0.5% fall recorded in November 2015.
The data has already created concerns. It is expected to add to voices calling for further monetary easing by the European Central Bank (ECB).
China's economy is slowing down. It is expected to remain in the range of 6-7% growth this year. And given its sheer size and impact on the global markets, equity markets will have to face this elephant in the room.
The above factors have affected most of the world economies. And from what is being seen, the troubles in the global economy appear to be unending. While the Indian economy is said to be relatively lesser impacted by the above factors as compared to other economies, in a strongly interlinked globalised world no economy escapes the brunt. Instead of deflecting the criticism by pointing out that all emerging markets are in the same boat, India should try for the successful passage and implementation of the government's reform agenda. The need to build safety mechanisms against external shocks is higher than ever. And until this is done, investors would do well to be cautious and not get carried by talks of quick turnarounds and better times ahead.
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