Stock markets are venues where buyers and sellers connected to exchange net asset shares of public corporations. The stock market is a complex economic system that is influenced by world events. Countries’ economic growth or decline, international relations, political transitions and other external factors can impact share prices and the overall performance of the stock market.
From the beginning of this millenium there are several crisis occurred that badly affect the economy of the world that eventually affect the Indian economy. Some of the major global events are the dot -com bust, terrorist attack on world trade center, US subprime crisis, European debt crisis, stimulus packages, trade tariffs, US presidential election, COVID 19 pandemic etc. All this crisis causes major impact on the US and other international stock markets that eventually impact the Indian stock market.
In this article we are discussing about the major global events that affected Indian stock market.
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Global Events That Affected The Indian Stock Market
US Housing Bubble Burst
This is one of the major significant event that severely affect the Indian stock market. This crisis was occured on 2008 that led to the global financial crisis. Historically various events have affected the stock markets, but none might be as impactful as the US housing bubble burst of 2008. In September 2008, NIFTY fell by 10.06%.
US Federal Reserve Policies:
The policies of the US Federal Reserve can also impact the Indian stock market. For example, when the Fed lowers interest rates, it can boost the stock market, as lower rates make it cheaper for companies to borrow and invest. On the other hand, when the Fed raises interest rates, it can lead to a decline in the stock market, as higher rates increase the cost of borrowing.
Terrorist Attack On World Trade Center
On September 11, 2001 when America was attacked by terrorist the entire global business community felt the impact. Stock markets immediately nosedived, and almost every sector of the economy was damaged economically. The Indian stock market was just recovering from 2000 dot com bust had to face yet another big blow in the form of world trade center terrorist attack. Miraculously, however, the markets and business in general bounced back in a relatively short time.
European Debt Crisis
As a result of the housing bubble burst in 2008, the world wide economies entered into a recession period. As a result, some European countries could not engender enough economic growth to pay back share holders.
The European debt crisis began with the fall of Iceland’s banking system in 2008. Portugal, Italy, Ireland, Greece, and Spain followed legal action in 2009. The result was a lack of confidence in European businesses.
In the Economic Survey of 2011-12, the Indian government noted that volatility in Indian and other financial markets would persist as long as the European crisis persisted. By 7th May 2010, a few days after it was announced that Greece will receive a €110 billion bailout, NIFTY 50 had fallen 4.93% in just 5 days.
Subprime Meltdown
The subprime meltdown was the sharp increase in high-risk mortgages that contributes most severe recession in decades. The housing boom of the mid-2000s, along with low-interest rates, led many lenders to offer home loans to borrowers with poor credit. When the real estate bubble burst, many borrowers were unable to make the payments on their subprime mortgages. The subprime meltdown led to the financial crisis, the Great Recession, and a massive sell-off in the equity markets.
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Political Transition
One of the nominees for the US presidential election was Donald Trump in 2016. Most of the people did not like his way of election campaigns and feared of the fact that if he became the president it would not be fair for US and the global economy. People’s fear came true and Trump became the US president. As a result of this, the US market fell down globally including India. But this meltdown was short lived and the markets were eventually recovered.
Trade Tariff Wars
The US President Trump’s most prominent policy actions was to raise tariffs, which significantly harm the U.S. economy. Trade barriers such as tariffs increase the cost of both consumer and producer goods and depress the economic benefits of competition, inhibiting economic growth. He made some changes in the US visa policies that affected Indian IT professionals travelling to US. Trump introduced protectionist measures that made Indian companies operating in the US to recruit locals, that increases the operating costs for Indians companies and withdrew the preferential trade status for India under GSP and threatened with trade tariffs.
US-China Trade War:
The US-China trade war has affected the Indian stock market in several ways. The uncertainty surrounding the trade war has led to a decline in investor confidence, causing the stock market to dip. Additionally, the trade war has led to a slowdown in the global economy, affecting the export-oriented sectors in India, such as IT and pharmaceuticals.
COVID 19
COVID-19 originated in Wuhan, China, in early December 2019. By March 2020, the disease had spread worldwide and reached pandemic status. The lockdowns resulting from COVID-19 affected production and supply chains worldwide. On 23rd March 2020, in the biggest crash yet, the Nifty 50 fell by 12.98% or 1,135.20 points to a 4-year low of 7,610.25 points. The crash of 23rd March 2020 is considered to be one of the major events in Indian stock market history.
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Russian – Ukraine Conflict
Russia is one of the biggest exporters of oil and petroleum products. The latest nasty surprise for the Indian stock market would be the Russia-Ukraine conflict that started on 24th February. Western nations imposed sanctions on Russia, which increased crude oil prices. Furthermore, Russia supplies 40% of the world’s palladium while Ukraine produces 70% of the world’s neon, 2 key elements in producing semiconductors (chips). Thus, the shortage of semiconductors was worsened by this conflict. Semiconductors are an essential component of electronic devices, which power almost everything from communication and healthcare. Fears of escalation to a nuclear war have also spooked the global markets.
High Inflation And The Interest Rate Hikes That Followed
In 2022, economies worldwide have been dealing with high inflation. In India, inflation has stayed above RBI’s target range of 2% to 6% in all months of 2022 so far. In the US, inflation reached a 41-year high in June 2022 at 9.1%. High inflation lowers the purchasing power of people and leads to lower consumption. To curb inflation, various central banks have announced interest rate hikes. But, in addition to lowering inflation, hiking interest rates also increases borrowing costs, lowers consumption and leads to lower growth. This is why inflation and interest rates are being closely followed by investors. Due to the above-mentioned events currently affecting the Indian stock market, NIFTY 50 fell by 9.07% in the first half of 2022.
Geopolitical Tensions:
Geopolitical tensions, such as the conflict between India and Pakistan, can also impact the stock market. During times of heightened tensions, investors may become nervous and sell off their stocks, leading to a decline in the market.
In todays world, as we are living in a globalised economy all of us are interconnected than even before. Over the years, various events have affected the stock markets. Events that affect stock markets may originate in India or in other nations. These events include government moves to pandemics. Investors might find it challenging to keep up with all these events coming from different locations and asset markets. As an investor you need to take remedial measures of the above global events and make your decision of investment accordingly. By following remedial measures you can be well prepared for such global shocks by adopting appropriate asset allocation to various asset class such as debt, gold, real estate etc.
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It is important to note that the impact of global events on the Indian stock market can be short-term or long-term, depending on the nature of the event and its resolution. As such, it is always a good idea for investors to stay informed and assess the potential impact of global events before making investment decisions.
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