The Supply and Demand Affects:
Individuals, businesses, and the financial markets as a whole are significantly affected by supply and demand. When there is high demand and short supply, the danger of supplies running out at present prices encourages customers to buy at high prices, resulting in even more price hikes. Due to huge margins, a significant number of vendors enter the market, increasing the supply, causing prices and hence the margins to fall. This results in loss making vendors to exit the market and hence more margins for surviving vendors and this cycle continues.
2. Endogenous Geopolitical factors affecting the stock market:
The Geopolitical condition of a country is one of the most important variables influencing the stock markets. If the political environment of a country is unstable where there are conflicts, with weak or ineffective law and order, the stock markets reflect the same picture of uncertainty. Similarly, a country’s stable government and strong law & order is mirrored in its stock market as well. Furthermore, a government’s strong development plans and investment for the country and its various industries positively impact the investors who are encouraged to invest as well.
3. World politics and its impact on global economies:
No developing or developed economy can exist in solitude. An event in one part of the world has ripple effects worldwide. The most recent evidence of it was when the US-China trade war affected the trade worldwide but India’s commerce was significantly impacted then with Covid19 crisis in the picture Indian economy with the global economy had compounding effects. Similarly, in 2021 when the Afghanistan crisis occured, it too impacted Indian bilateral commerce. The Russia-Ukraine war was no exception. Events such as these don't only affect the current trade, commerce, policies and economy as a whole but also sometimes affect the foreign relations impacting future economy developments and growth prospects.The lesson of the crisis is that it spreads quickly and India being one the fastest growing economy is impacted in varying degrees relative to other economies.
4. US Federal Reserve and its impact:
The reduction and growth in funds infused by the Fed and Fed fund rates impact the availability and cost of overseas finance for Indian companies. It also impacts the foreign portfolio inflows in Indian equity and bond markets. Global investors borrow in currencies with zero or low interest rates to invest in assets across the world. This is called carry trade, which is partly responsible for the raging rally in stocks in India and elsewhere. As rates rise, the carry trade can reverse causing global sell-off. But the solace for stock markets is that not all central banks think alike. While the Fed tightens, the European Central Bank and the Bank of Japan are likely to continue easing their monetary policy, thus somewhat mitigating the Fed’s actions.
5. Monetary Policy of RBI and Regulatory Policies of SEBI:
The Reserve Bank of India (RBI) is the supreme authority in India that controls monetary policy. RBI continuously evaluates its monetary policies. The stock prices are impacted by the change in the repo and reverse repo rates. The liquidity in the banks is decreased if the RBI increases the key rates. As a result, borrowing becomes extremely expensive for the business sector, and some companies may struggle to meet their loan payments. Investors start selling the company's shares because they perceive it as a barrier to the development of corporate operations, which lowers the stock price. When RBI adopts a dovish monetary policy, this turns around. Banks reduce the lending rates which leads to credit expansion. Investors consider it a positive step and the stock price starts improving.
Similarly, any changes in trading and investment policies done by the Securities Exchange Board of India (SEBI) which keeps an eye on the entire stock market activities impact the performance of the shares of the listed companies on the stock exchanges (NSE, BSE).
6.Natural Disasters:
Natural disasters hamper lives and the market equally. It impacts the company’s performance and the capacity of people to spend the money. This will lead to lower levels of consumption, lower sales and revenues ultimately hitting the company’s stock performance.
7. Exchange Rates:
The exchange rates of the Indian Rupee keep fluctuating vis-à-vis other currencies. When the rupee hardens with respect to other currencies it causes Indian goods to become expensive in foreign markets, Companies that are highly affected are the ones involved in overseas operations. Companies dependent on exports experience a drop in demand for their goods abroad. Thus, revenue from exports declines and stock prices of such companies in the home country fall.
On the other hand, softening of the rupee vis-à-vis other currencies results in the opposite effect. In this, the stock price of exporters rises whereas that of importers drops.
8. Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs):
FIIs and DIIs activities highly impact the stock market. As they have a prominent role in the stocks of the company, their entry or exit creates a huge impact on the equity market and influences the stock prices.
9. Economic Numbers:
Various economic indicators influence the economy and the financial market. The change of oil prices and GDP has a significant influence on the stock market. Every fluctuation in price affects the country that is reliant on imported oil. This directly affects the stock market as well. As prices rise, expenditures rise, reducing purchasers' capacity to invest in the market. Similarly, Gross Domestic Product (GDP) considers the country's entire economic productivity as well as its overall economic health. It aids in displaying economic changes and the market's future orientation. A robust GDP will result in a positive impact on financial markets and investment.
10. Gold Prices and Bonds:
There is no well-established theory expressing the link between stock prices and gold and bonds. Stocks are typically seen as volatile investments whereas gold and bonds are regarded as comparatively secure investments. As a result, during a big economic downturn, investors choose to invest in secure assets. As a result, gold and bond prices are inversely related to equity stock prices. To calculate the expected rate of return on equity, investors add the equity risk premium they desire over and above risk-free rate. The risk-free rate is usually estimated by long government bond yields.
11.International Transactions and Balance of Payments:
The movement of funds between nations has an impact on the strength of a country's economy and currency. All the transactions done by all the countries are maintained in the form of 2 accounts, ie, current and capital accounts. All the imports and exports are recorded in the current account and any deficit and surplus is balanced through capital accounts. When there is an imbalance is Imports and exports, the same is reflected in its currency. Excess imports pushes the currency downwards. This deficit can be balanced by attracting capital investments into the country by offering higher returns and stable investment ecosystems.
12.Global markets and local reactions:
As the global economies are interlinked and worldwide markets are all interconnected, the investment decisions of large portfolio investors and hedge funds affect the investors decisions globally. Also as the markets have systemic risks and due to extreme volatility of financial markets a small movement in one part of the world may end up causing huge damages in many different economies. This was observed how in 2008, the fall of the banking sector in the US caused many Banks in other economies to fail as well.
13.Speculation and Expectation:
Speculation and expectation are integral parts of the financial system. Consumersas well as investors have varying expectations about the direction and the speed with which the economy will move forward. These future expectations affect their present investment decisions. Sentiment indicators are commonly used to gauge how certain groups are feeling about the current economy. Analysis of these indicators as well as other forms of fundamental and technical analysis can create a bias or expectation of future price rates and trend direction.
14. Dollar Index:
The dollar index is one of the macroeconomic components that has a considerable influence on Indian stock markets. It is important to understand that the dollar index and the Indian stock market have an inverse relation. This is because when the dollar index falls, FIIs invest more in Indian equities, which provide larger returns than dollars. In the Indian stock market, a few industries have suffered disproportionately compared to others. As a result, as the dollar index rises, the share value of such companies falls, particularly in cyclical and domestic consumption industries such as banks, autos, oil and gas, capital goods, and metals.
15.US market indices:
Globalisation has resulted in the creation of a single global economy, with global financial markets running in lockstep. As the US is the largest economy in the world. Any negative or positive news in the US markets has a direct influence on Indian stock markets.
16.A list of exchange-related indexes which are important in INDIAN CONTEXT
NIFTY 50
SENSEX
CURRENCY
USD - INR
DOLLAR INDEX
Gold indexes
Crude index
COMPREHENSIVE LIST
Nifty 50
Nifty Sgx
DOW JONES
Hang Seng
Ftse
Note: - Nifty sgx is very important because people take clues from it at the pre-open session of nse (nifty). When in the afternoon the European Market opens then also volatility comes into the market.
Moreover, in the present-day world moves on the oil be it polymer products or transportation. The world will come to a standstill without oil. Therefore, prices of oil are directly related to consumption patterns and ability.
Following NASDAQ and Dow Jones for the previous day because if something important happens internationally, a similar influence can be noticed in Indian markets, and to estimate the impact of that particular occurrence, keep an eye on NIKKEI and KOSPI as they open in the early morning hours long before the Indian market starts. They are also the market leaders in ASIAN markets.
The heteroskedasticity test has a substantial probability value in all of the Asian and European countries studied. This investigation discovered that the data from chosen other nations influences the volatility of the Indian market. The Indian market has a high link with the indices in Singapore and Japan. The French CAC 40 of the European Market has a stronger link with the Nifty. The opening of the Indian market nifty is influenced by the Asian stock markets NIKKEI and Singapore. The European market was shown to be more significant than the Indian market, indicating that the opening of the European market influenced the direction of the nifty after 12:30.
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