The Impact of Global Indices on the Indian Stock Market
Globalization has transformed the world into a single interconnected market, making the Indian stock market significantly influenced by Asian, US, and European markets. Due to the liberalization of the Indian economy, foreign investment has surged, making the Indian stock market more sensitive to global economic movements. A minor change in the US market can lead to a significant impact on the Indian stock market, showcasing the strong correlation between the two.
The Strongest Correlations
Indian markets, particularly the Bombay Stock Exchange (BSE) Sensex, have been found to be most strongly correlated with Hong Kong's Hang Seng Index. On average, a 10% rise or fall in the Hang Seng results in a 6.5% move in the Sensex. The second-highest correlation is observed with the South Korean Kospi index. This high level of correlation indicates that movements in the Asian markets, especially in Hong Kong and South Korea, have a considerable impact on the Indian stock market.
The Role of Major Markets
Major economies like the US, European, and Japanese markets play a crucial role in influencing the Indian stock market. A significant shift in any of these markets can affect others in the short term. The US stock market, in particular, has a substantial impact on the Indian market due to the high level of derivatives exposure and the large inflows of Foreign Institutional Investors (FIIs).
US and Asian Indexes Impact
The US indices, such as the Dow Jones and Nasdaq, have the most significant impact on the Indian stock market. Whenever the Dow moves, we can expect a corresponding movement in the Nifty, which is the index of the Indian stock market. Similarly, the Asian Nikkei index also exerts some influence on the Nifty. This inter-linkage is evident in the flow of FIIs, which monitor global markets and adjust their investments accordingly.
Interdependence of Global Markets
Financial markets are interdependent, and changes in one market can trigger shifts in others. When major global markets are affected, FIIs alter their investment strategies, which in turn impacts multiple stock markets. For instance, if the US stock market experiences a downturn, FIIs might shift their investments away from India, affecting the overall market performance.
International Listings and Global Economy
Indian companies also raise funds by listing on international stock exchanges such as the New York Stock Exchange (NYSE), London Stock Exchange, and NASDAQ. The share price movements of these companies are closely tied to global economic developments, making them susceptible to changes in global indices. For example, the SGX Nifty, which is an index based on the Singapore Stock Exchange's Nifty contract, also affects the Indian stock market, especially when there are significant shifts in the Asian market.
Staying Informed
For investors interested in staying updated on the Indian stock market, we recommend following updates from Stock Phoenix. We provide comprehensive stock analysis, market information, and past performance on our Telegram channel at Stock Phoenix. Additionally, for those looking for regular market updates and in-depth stock analysis, we offer a YouTube channel where you can access our weekly market analysis and other valuable insights.