Global development impact on Indian markets

WE HAVE seen tremendous amount of volatility in our markets in recent past. There are days when intraday movement in stock indices (Sensex and Nifty) is above five per cent. News and events from global markets is one of the prime drivers of volatility in Indian markets in recent past.

By (Economic Times)

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Published: Wed 26 Dec 2007, 9:02 AM

Last updated: Sat 4 Apr 2015, 9:43 PM

For example news regarding economic recession in US, soft or hard landing and estimation of losses due to subprime crisis in US, speculation over interest rates cut by FED, rise in global commodities prices, fluctuation in global crude oil prices etc.

These are some of the main global events that kept the market ticking in last few months and are expected to drive the market direction for short to medium term. Sub-prime crisis: Subprime crisis in USA market is basically the losses to financial institutions due to default by home loan borrowers.

Due to weaker economy growth, property demand or prices in US have not gone up as expected by many speculators in the real estate. As a result they started to default on their housing loans. The banks increased the interest rates on home loan due to higher risk or default and this resulted in more default by home loan borrowers. News, views and speculations about the quantum of sub-prime crisis is one of the prime drivers of global markets from last few months.

A lot of analysts are watchful on a possible subprime crisis in Indian property market as well. They argue that the interest rates in Indian markets have also gone up significantly in last couple of years and this could trigger a sub-prime crisis in Indian markets.

Fed rate cut: USA Federal Reserve (Fed) has cut the interest rate by another 25 basis points in their recent policy review. Although, this 25 basis point cut was inline with the expectations of many economists and analysts, but it failed to cheer the overall market sentiments as traders were expecting a 50 basis point cut from Fed.

As an immediate reaction, this triggered a sell-off in the global markets. Although Fed rate cut has no relation with Indian markets, but we saw a sell-off in our markets as well due to weaker sentiments.

Growth in China: China is the fastest growing economy in world (growing at around 10 per cent per annum). Since Chinese economy is mainly export driven, a lot of analysts feel that there will be a slowdown in the growth rate of Chinese economy due to slowdown in US as US is one of the prime consumer of Chinese goods.

Crude oil: The prices of crude oil has gone up significantly (almost 50 per cent) in the year 2007. Higher crude oil has resulted in higher inflation worldwide as crude is one of the prime sources of energy. Higher inflation rates may result in slower economic growth.

Foreign institutional investors (FIIs) have invested around $18 billion in Indian markets in 2007 (around 80 per cent more from the previous year).

SEBI curb on participatory notes have seen a temporary negative in Indian markets, but sharp recovery in the market shows the investors’ appetite of Indian equities.

Many analysts feel that there will be more funds flow in 2008 as India is planning to open investment routes to foreign retail investors as well. Currently, the markets are under consolidation phase and provide a good opportunity for small investors to enter into the market. Medium to long term investors can identify fundamentally good stocks and invest in stock markets.

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