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How Global indices affect the Indian stock market

11 Sep 2023

Have you had a look at the global stock market today? If you are an investor or a trader, you may have done so. Speaking of global stock markets, you may also know that the US dollar and its behaviour have some bearing on stock markets around the world, not just in India. Taking this a step further, you may also see that global indices may have an impact on the stock markets in India. Significantly, the Dollar Index is the global index to watch when you want to see how global indices impact the Indian stock market. 

How frequently do you monitor the Dollar Index while investing in the Indian stock market? Do you know that one of the macroeconomic elements, the Dollar index, may assist you comprehend the current state of the Indian stock markets? If not, let’s see how these macroeconomic elements assist us in trading on the Indian stock exchanges.

Many variables influence the movement of the Indian stock market. These variables are mostly divided into two groups: Factors both macroeconomic and microeconomic. Macroeconomic variables have an impact on the whole economy or all sectors, as well as individual equities that are influenced by microeconomic factors. Certain variables influence Indian stock markets over time, or prices change in expectation of these events or developments in the economy, a sector, or specific stocks. So, let’s examine how macroeconomic variables impact Indian stock markets and what the five most significant macroeconomic elements are that affect the Indian stock market.

What does it imply by "macroeconomic factors"?

The global share market today is small. Small, not in terms of its size, but the fact that all markets, all over the world are connected. Therefore, what happens in one, affects the other and so on. The Dollar Index is the index that affects most markets all over the globe, and naturally, the Indian market too. If you glance at the global share market today, you will find out a lot about the way the Indian stock market is moving and the trends you may have to consider. The world's markets are linked, and the effects of portfolio investors and hedge funds may spread quickly across markets. Many of us observed how the banking sector caused the global economy to fall in 2008. The financial meltdown of 2008 was mostly caused by deregulation in the banking sector. The banking sector has permitted derivatives speculation supported by low-cost mortgages made accessible to even people with doubtful creditworthiness. The growth in property prices and the availability of low-cost mortgages enticed many individuals to take out house loans, resulting in the housing market bubble. The Fed hiked interest rates in 2004, causing a rise in mortgage payments and putting a strain on house borrowers' ability to pay, resulting in the bubble bust in 2007.

By mid-2008, the Indian stock markets had fallen roughly 20%, in line with other global stock markets, as a result of the 2008 financial crisis. Now that we've seen how these macroeconomic variables influenced the Indian stock market on a worldwide scale, let's look at which macroeconomic factors influence the Indian stock market.

1. Dollar Index:

One of the macroeconomic elements that has a significant impact on the Indian stock markets is the dollar index. Traders should be aware that the dollar index and the Indian stock market have an adverse connection. The reason for this is that when the dollar index declines, FIIs invest more in Indian stocks, which provide higher returns than dollars. The technical analyst may readily analyse the dollar index with NIFTY 50 to determine the market's current situation. The Indian stock markets have suffered as a consequence of the growing dollar value. In the Indian stock market, there are a few industries that have suffered disproportionately in contrast to others. 

As a result, when the dollar index increases, share values of such businesses are likely to decline, particularly in cyclical and domestic consumption industries including banking, automobiles, oil and gas, capital goods, and metals. As a result, if you are a frequent trader, watching or comparing the dollar index with the NIFTY 50 index in technical analysis utilising technical charts might be beneficial.

2. US market indices:

As a result of globalisation, the whole globe has become a one economy, with global financial markets operating in lockstep. You could think of the different share markets as being an “all world share market”. Because we are connected to the rest of the globe via numerous enterprises, every firm is linked to another, either directly or indirectly, in order to achieve their goals.

As we all know, the United States has the world's biggest economy. Any unfavourable news in the US markets has a significant impact on worldwide markets, particularly the Indian stock markets. More than any other event across the globe, say, in countries other than the US, the US and its events, especially to do with finance and economics, have an effect on all the international markets put together. The global share market index is affected by the US market, and this affects all the markets in individual countries across the planet. There are many examples of such circumstances in history. As we've seen, the 2008 financial crisis had an impact on practically every country's economy. The Indian stock markets plummeted, and global house prices began to fall, causing widespread anxiety throughout the globe. As a result, we may conclude that the five-year charts of the Nifty 50 and the Dow Jones Industrial Average show a clear association between the two markets.

Wrapping Up

As we've seen, all of the aforementioned macroeconomic variables have a significant effect in the price fluctuations of Indian stock markets. Traders who trade the stock market on a regular basis should review all of the aforementioned macroeconomic aspects at least once a week to assess the current state of the Indian stock market.

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