How does the US market influence the Indian stock market ?

 How does the US market influence the Indian stock market ?

Indian and US stock market comparisons

Market size

The US stock market is significantly larger than the Indian stock market. The Total Market Capitalization of Indian Stock Market BSE is about $5 trillion, while that of US Stock Market is about $50.8 trillion.

It's often said, "When the US sneezes, the world catches a cold." This metaphor holds particularly true for the stock market

Global incidents, such as the dot-com bubble, 9/11, the US subprime crisis, COVID-19, recent US economic challenges and geopolitical tensions like the Russia-Ukraine conflict and the Israel-Gaza crisis have all significantly impacted the Indian stock market.

Let’s explore the relationship between these two economic powerhouses, and understand how the US market’s ebbs and flows can dictate the tempo of the 

Indian stock market

How the US market influences the world

The US market serves as a barometer for the global Economy Flagship bourses in the US like the Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite, and bond yields, grab the attention of investors all over the world.

In terms of bond yields, the U.S. Treasury yields, particularly the 10-year Treasury note, are closely watched. The ups and downs of these indicators are powerful enough to trigger significant development in economies across the globe, India included.

How US markets impact the Indian economy

Trade partnerships: As India’s largest trading partner in 2022-2023, the US significantly impacts the Indian economy. The performance of the US market can forecast economic trends in India. For instance, if there’s a fear of recession in the US, Indian markets often prepare for potential volatility.

The role of the US dollar: The US dollar's strength is a critical global economic indicator. It's not just a currency but a reflection of the US economy's health. The movement of the DXY (US Dollar Index) is a key determinant of the position of the Indian rupee and has large-scale repercussions, not just for multinational companies but for the economy as a whole. Interestingly, there has been a noticeable surge in currency trading in the sub-continent after the advent of new-age online trade apps.

 

Breadth of economy: The US market is a front-runner in the global financial theatre given the fact that nine out of the world's ten largest companies are publicly listed there. The scope and the breadth of the US markets set the market tone for the world, including India.

 

Impact of tariffs: When the US decides to ramp up trade tariffs, it can hurt Indian companies that export goods there, leading to reduced profits for these businesses. This situation could result in a drop in stock market values in both countries, as investors react to the potential decrease in trade and earnings.

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