The Indian stock market may move due to a variety of reasons. The share price may increase or decrease depending upon the performance of a company, global factors, the overall economic conditions, government policies or due to many other direct events. For the students who are willing to step in the world of economics and investment studies, understanding why the market moves is very important.
There are basic global factors that affect not just Indian stock market, but markets around the globe. The movements can be due to US interest rates, crude oil prices, foreign investment, Indian rupee exchange, worldwide events and foreign markets. Though these may all have an impact on the investor's sentiments only, and their sentiments then movebthe market. Any change in these factors causes a mood shift among the investors. Understanding the issue would also help to understand the daily fluctuations in the market.
Top Global Factors Affecting The Indian Stock Market
Global Interest Rate and US Federal Reserve
The interest rate decisions of the US Federal Reserve (the central bank of the US) will have an impact on the markets worldwide. When the US interest rates increase, investors will choose US assets and investment. So, the investors pull out money from Indian markets and hence, this will reduce foreign investment in India. More investors will seek higher returns in foreign markets such as India when the rates in the US decline, which can lead to the support of the Indian stocks.
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Crude Oil and Commodities
Crude oil is crucial for India because it imports a huge amount of its oil. When the crude oil prices increase, it will increase import bills and business costs for India. Airlines and other transporters will have to pay higher expenses. Opposite to that, lower crude oil prices will reduce the costs for Indian companies. Like recently, when the Strait Of Hormuz was surrounded with conflicts, it affected the crude oil prices. It created a ruckus in the stock markets and for India companies. On the other hand, The global price of metals such as Gold and Silver and other commodities also heavily affects the Indian stock market on daily basis.
Foreign Investor Flows
Foreign Portfolio Investors (FPIs) are defined as investors from foreign countries who invest in Indian stocks and other financial assets. Whenever global investors are on a bullish run they might be inclined to invest more in India. But in critical situations they might only sell Indian shares. Heavy FPI selling could weigh on the Nifty 50 and Sensex, causing a stock market crash.
Indian Rupee and US Dollar
The value of the rupee against the US dollar is another major aspect that matters for Indian stock markets. A weaker rupee would make imports, among them crude oil, more expensive. But companies earning from their foreign operations might get an edge. IT and pharma firms are examples of businesses earning a significant share of their revenue abroad. Hence, changes in currency can affect different sectors differently.
Geopolitical Issues and Trade Wars
Wars, conflicts, sanctions, and trade disputes can all add uncertainty to financial markets. Disruptions on important shipping routes can raise fuel and transportation costs. Trade restrictions and tariffs can also have an impact on companies that rely heavily on imports or exports. Investors keep a close eye on these events because they can affect operating costs for businesses, company earnings, and economic growth. This, in turn, can affect activity in the stock market.
International stock markets
Indian stock markets are also affected by major markets around the world. Whether investors in the US feel confident is signaled by the performance of their own markets, like the S&P 500 and Nasdaq. Asian markets, especially Japan's Nikkei and Hong Kong's Hang Seng, are also monitored closely. A good global market can raise confidence, while a weak global market can make investors second-guess investing in shares, eventually affecting Indian stock market.
How Global Factors Can Affect Indian Stocks
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Global Factor
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Possible Impact
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Sectors That May Be Affected
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Rising crude oil prices
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Higher input and operational costs
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Aviation, Paints, Tyres
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Falling crude oil prices
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Lower input and operational costs
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Aviation, Transport
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US interest rate hikes
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Foreign capital outflow from emerging markets
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Banking, Equity Markets
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US interest rate cuts
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Increased global liquidity and capital inflows
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Banks, Auto, Real Estate
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Weaker rupee
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Higher import costs, higher export earnings
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IT, Pharma, Textiles
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FPI selling
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Downward pressure on stock prices and market sentiment
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Major Stocks and Indices
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Global trade tensions
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Higher policy and trade uncertainty
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IT, Pharma, Exporters
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Strong global markets
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Boosted investor confidence and positive sentiment
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Broad Market
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Why Should Students and beginners Learn About These Factors?
The market is directly linked to the economy and global events. A change in crude oil prices, US interest rates or an ongoing global conflict may impact Indian companies. Students must learn to read between the lines and learn to understand the reasons for price movements rather than following the day-to-day fluctuations in share prices.
Knowing about these factors helps students better understand the interlink between businesses, investors and economies. It is important to note that a single factor cannot predict a stock’s market performance. Investors generally study multiple factors before making investment choices. So, learn before you step in.
Disclaimer: This Jagran Josh article is for educational purposes only and not financial advice. Investments involve risks; students should research independently and consult qualified professionals before investing.