Globalization has led to a borderless economy i.e., a global economy. Economies, industries, and businesses are now interconnected and interdependent which has caused the integration of financial markets and improved their efficiency.
This ultimately has encouraged foreign inflows into developing and emerging economies like India.
Furthermore, most Indian companies today have operations across multiple geographies that cater to customers across time zones and continents. The interconnectedness ensures that an occurrence in one part of the world affects stakeholders and companies across the globe which is further reflected in stock markets.
In this article we have highlighted how the global factors affect the Indian stock market.
# The Dollar Index - Dollar index is one of the macroeconomic elements that has a significant impact on the Indian stock markets.
Generally, there tends to be an inverse relationship between the dollar index and the Indian stock market. The reason behind this is that when the dollar index falls, FIIs (Foreign Institutional Investors) invest more in Indian stocks as they give higher returns as compared to returns from dollars.
Conversely, when the dollar index strengthens, the Indian stock markets may witness pain due to FIIs outflows.
# US Treasury Bonds - The US treasuries are one of the safest investment avenues and attract massive flows from investors all across the world.
A rising yield indicates an increase in borrowing cost for businesses which discourages future capex/expansion plans and their interest expense increases. Investors view this negatively as this rise is going to affect the profitability of the businesses which results in a fall in the equity markets.
Thus, there tends to be an inverse relationship between treasury yields and stock market movement i.e., when yields rise stock market tends to go down as investors tend to shift capital from risky assets (like equity) to safe assets (like bonds) and vice-versa.
# Crude Oil - India is a major importer of oil as more than 85% of India’s domestic oil requirements are met through imports. Industries like tyres, logistics, refinery, airlines, lubricants, paints, etc. are directly affected by a change in global crude oil prices.
Increase in oil prices adversely impacts India’s trade deficit, increases input costs of related products, dents corporate profitability and leads to rise in inflation. All of this negatively impacts the sentiments of market participants and stock prices. Thus, there tends to be an inverse relationship between the crude oil price and the Indian equity market.
# Nasdaq Index and the Indian IT Sector - The Nasdaq index, which is a global benchmark for technology stocks, has a significant impact on the Indian IT sector. Many Indian IT companies have a significant presence in the US and derive a large portion of their revenues from the US market.
When the Nasdaq index performs well, it can lead to an increase in demand for Indian IT stocks and vice versa.
# SGX Nifty - The SGX Nifty, which is a Singapore-based index, indicates how the Indian stock market is likely to perform on the next day. It is essentially a futures contract based on the Nifty 50 index, which is India's benchmark stock index.
The SGX Nifty provides investors with an early indication of how the Indian stock market is likely to perform, allowing them to make more informed investment decisions.
# Indian ADRs - Indian ADRs, or American Depositary Receipts, are stocks of Indian companies that are traded on US stock exchanges. ADRs can provide investors with insights into the performance of Indian companies and can also impact the Indian stock market as ADR prices are closely linked to the prices of their Indian counterparts.
In conclusion, the Indian stock market is highly influenced by various global indicators. By keeping an eye on these indicators and understanding how they impact the Indian stock market, investors can make more informed decisions and potentially earn better returns.
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