As you all know Indian stock market is strongly influenced by global market. In this blog let’s have a look on Effect of international market on Indian stock market. India is one of the biggest developing market economy in the world. India is the world’s fifth-largest economy by nominal GDP and the third-largest by the terms of purchasing power parity. Indian economy is increasingly exposed to international market after Narasimha Rao Government installed LPG policies (Liberalisation, Privatisation and Globalisation) during early 90s. The LPG model changed nature of Indian economy from socialist economy to mixed economy, making India is a better place for foreign investors.
After globalization, Indian stock market is integrated to global market and its effects are visible. There are several factors that affects the Indian stock market namely interest rate, supply and demand, inflation and effect of international market. Out of these effect of international market plays a very important role in regulating Indian stock markets.
During the past two decades there is a large fund inflow to Indian stock market from international investors. Indian market receives huge fund from international investors through Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). FDI is a long term investment that a parent company makes in a foreign country on other hand FII is short-term investments investment made by an investor in the markets of a foreign nation. After liberalisation the fund inflow to the Indian market through FDI and FII got a huge momentum. This investments are closely related to conditions prevailing in international markets. So changes in our stock market is greatly influenced by trends in international market. Effect of changes in international market can be clearly visible in Indian stock market.
More over Indian companies exports their products to international market. The export volume is increasing day by day. The domestic Indian companies finds its huge profit from international market. This share of revenue of Indian company across the globe in increasing annually. When there is global recession these Indian companies cannot sell their products in international market. This affect the revenue portfolio of the company. This changes the values of shares of the company in the Indian market. People stops investing in such companies and eventually the share price falls. Indian companies also raises funds by listing on varied foreign stock exchanges internationally. NYSE, London Stock exchange and NASDAQ are some of them. The share price movements of these companies are more likely to be affected by the development of the world economy. If there is a plummet in international market, the revenue of such company decreases and this leads to investors anticipating a ripple effect. This will result in a decline in the country’s stock exchange.
As Indian economy is widely opened to internarial investors and Indian companies finds its revenue from international markets Indian economy is susceptible to any change that happens in international market. Effect of international market on Indian stock market is really significant.