Interest Rates:
If the interest rates are high the depositor would be interested to invest the money or else he would look for a better opportunity where the return is higher.
Say for example in the US the interest rates are very low, but the investor wants a high rate of return. So he invests in emerging or developing economies that require money and wherever the return is higher. And suddenly the interest rates have increased in their home market i.e. U.S market then whatever the amount that foreign investor has invested through FII, he will be taking it back as he doesn’t want to take the risk and he will invest in his own country.
US-China Trade war:
When there is a tension between the two nations, the reason behind why there would be an effect on the other nation (India) is because we have major trade businesses with both the nations. But it benefits India in either way as trade tensions rise between both the nations a study by UN trade and investment body said in the first half of 2019 India gained about $755 million in additional exports to the USA.
If the trade agreement takes place between the two countries this wouldn’t benefit India much. But if the trade war continues then U. S companies that have their manufacturing plant in China have to shift their base to other countries, such as Apple which has recently shifted its base from China to India and started manufacturing iPhones in Chennai.
Commodities:
If other commodity prices increase there would be a negative impact on the imports leading to an increase in the prices of the raw materials. This, in turn, will lead to an increase in the cost of the product and hence will lead to a decrease in demand.
Crude Oil: As we know India is one of the biggest importers of crude oil and if the prices increase it is not a good sign for our countries growth and it is a good sign when the prices of crude oil decrease. And if the prices increase there would be an impact on India’s reserves and currency movement.
Currency: If the amount of imports increases than exports, then it affects our country’s currency. Recently when China has devalued it’s currency (Yuan) there was a huge effect on the world stock market, but the Indian stock market has not affected much. If there is any moment in US $, Japanese Yen and Chinese Yuan then definitely there would be an impact in the Indian stock market.
Other Factors:
Developed countries have to perform well than the developing countries: This would be good news to the Indian stock market. Take for example the USA, it is a developed economy and if it performs well it is an advantage to India, as majority IT and pharma businesses of India are dependent on the US market. And take the example of China an emerging market like India and if it performs better it is not good for India as foreign investors through FII remove the investments from India and invest in China as the return and growth would be better in China than compared to India. FII’s do business with countries that can yield them high returns.
Generally, economists and finance ministers always compare our economy with a developed or a developing economy. For example, when our finance minister was addressing the media on 23rd August 2019 about India’s GDP growth she has taken the example of China. India’s GDP growth is much better than compared to China. The reason why she compared is both the countries India and China are developing countries.
India-Pakistan tension: This doesn’t have a major impact on the Indian stock market because India doesn’t have major trade with Pakistan.
Political Leadership in one country has an impact on the Indian stock market: In the USA the Democratic Party has formed the government as democrats are always in favor of Indians, it would create a positive impact on the Indian stock market. A majority of our trade happens with the USA so definitely, there would be an impact in the Indian stock market. Another example of political leadership would be the current NDA government having good relationships with current Rajapaksa’s Sri Lankan government.
India is still a developing economy and a long way still remains for it to be called as a “Developed economy”. However, no country on this planet is self-reliant. Each country is dependent on some of the other countries by some of the other aspect. It may be direct or indirect. The aspect can be related to commercially or geographically factor. It is due to this interdependence that, any action taken by one country or any event happening in one country affects the other country in some or the other way and India is no outlier to this. Be it a Trade war between two nations or a political turmoil in another nation or deflation in any economy. Minorly or majorly, India will be affected by it.
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