Previous This week, amid fears of recession in the US, the US stock market fell sharply, which affected the stock markets of the world including India. As a result, on Monday, August 5, the BSE Sensex closed at 78,759 points with a fall of 2222 points and the Nifty closed at 24,055 with a huge fall of 660 points. Investors lost Rs 17 lakh crore in this fall on August 5.
Another big question arose in the minds of investors
At first, common investors were not aware of the real reason behind this fall and when they came to know, another big question arose in their minds that how do the American stock markets affect or control the Indian stock markets? Here we will learn about those big factors due to which the American markets affect the Indian markets.
The whole world has its eyes on the American market exchange
First of all, you should understand that the US market acts as a barometer not only for the Indian economy but also for the economy of the whole world. Investors from all over the world keep a close eye on the US stock market exchanges – Dow Jones, S&P 500, Nasdaq and bond yields. The fluctuations in these indicators are powerful enough to trigger significant developments in the economy of the whole world, including India.
The friendship between Indian and American markets is quite old
This is not just a recent phenomenon. The US and Indian stock markets have had a strong correlation since time immemorial, with correlation coefficients ranging between 0.6 and 0.7. However, in the last few years, this has dropped to between 0.4 and 0.5.
Trade Partnership
As India’s largest trading partner in FY 2022-2023, the US influences the Indian economy in a big way. Movements in the US stock market are seen as a forecast of economic trends in India. For example, if there is a fear of recession in the US, Indian markets also prepare for potential volatility.
US Dollar
If the US dollar strengthens, it is an important global economic indicator. It is not just a currency but a clear picture of the health of the American economy. The condition and direction of the US dollar index is a major determinant of the condition of the Indian currency rupee and it affects not only multinational companies but the entire economy on a large scale.
size of the economy
The US markets top the global financial podium because 9 out of the 10 largest companies in the world are listed on the US stock market. Therefore, the size and scope of the US stock markets determine the condition and direction of markets all over the world, including India.
Effect of tariffs
When the US decides to increase trade tariffs, it can cause huge losses to Indian companies exporting goods to the US. This can lead to a huge drop in business profits. In such a situation, the stock market valuations in both the US and India can fall as investors react to the potential decline in trade and income.
In the end, it would not be wrong to say that the US stock market influences the markets of the whole world. But there is no doubt that due to the better economy and impressive future of the country, the Indian stock market is now moving ahead independently on its own, albeit slowly.
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