7th June 2024 (13 Topics)

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Indian Stock Market & Influencing Factors

Context

The 2024 Lok Sabha election results led to a sharp decline in the Indian stock market. This highlights the market's sensitivity to both big-picture (macroeconomic) and specific (microeconomic) factors, including global economic trends, individual company performance, and international investor behavior. As India's market becomes more globalized, changes in Indian indexes now have ripple effects on global markets.

Impact of Global Indices

GIFT Nifty: The shift from SGX Nifty to GIFT Nifty aims to better regulate Nifty derivatives trading. This change is part of India's efforts to enhance its financial sector and attract global investors to its designated international finance center.
Impact of GIFT Nifty:
- GIFT Nifty connects with the NSE Nifty, allowing for real-time price reactions.
- It provides more ways to access Indian stocks, potentially increasing trading activity.
- It serves as a benchmark for the Indian market, even when the market is closed.
- Overall, it's seen as a positive addition to the market, despite still evolving.
Indian VIX: The Indian VIX, also known as the Fear Index, measures how much investors worry about market uncertainty. A high VIX suggests more volatility, while a low VIX means investors are more confident.
Impact of Indian VIX:
- It shows how risky investors think the market is.
- A sudden increase in VIX means investors expect more ups and downs.
- It tends to move opposite to the Nifty index.
- When the VIX is at its highest, it could signal a good time to buy stocks.
NASDAQ: The NASDAQ stock exchange, known for its focus on tech companies, can affect the Indian market. Changes in NASDAQ can influence global investor attitudes toward tech stocks, which impacts confidence worldwide.
Impact of NASDAQ:
- Foreign investment in NASDAQ indirectly affects Indian markets.
- Investments crossing borders can affect Indian companies listed on NASDAQ.
- Various factors, including domestic conditions and global trends, affect Indian markets.
FTSE 100: The UK's FTSE 100 index influences the Indian market due to global investment connections. Changes in the FTSE 100 can affect how investors feel about investing in India.
Impact of FTSE 100:
- Uncertainty in the UK, like Brexit, can affect the FTSE 100.
- Investors may look to India for growth opportunities.
- A drop in the FTSE 100 could lead to more investment in India.
- A strong FTSE 100 boosts investor confidence worldwide, benefiting Indian equities indirectly.
Brent Crude Oil: Global oil prices, specifically Brent Crude, can affect stock markets, including India's. Changes in oil prices impact company profits and investor confidence.
Impact of Brent Crude Oil:
- Rising oil prices can hurt company profits and stock prices.
- Falling oil prices can boost investor confidence and stock prices.
- Recent events, like the virus outbreak, show that oil prices may not always have a big impact on stock markets.

Fact Box: Working of Indian Stock Market

The Indian stock market, also known as the share market or equity market, is where buying and selling of shares (or stocks) of publicly listed companies take place.
It's a platform where companies raise funds from the public, and investors buy and sell ownership stakes in these companies.
Key Players:
- Companies: Publicly listed companies offer shares to raise capital for business operations and expansion.
- Investors: Individuals and institutions who buy shares of companies for investment purposes.
- Stock Exchanges: In India, the primary stock exchanges are:
  - Bombay Stock Exchange (BSE)
  - National Stock Exchange (NSE)
- Regulators: Securities and Exchange Board of India (SEBI) oversee the functioning of the stock market.
How Does It Work?
- Initial Public Offering (IPO): When a company decides to go public, it offers its shares to the public for the first time through an IPO. Investors can buy these shares at the IPO price.
- Trading: Once a company's shares are listed on the stock exchange, they can be bought and sold by investors. This trading takes place on the trading platforms provided by stock exchanges, either electronically or through traditional trading floors.
- Market Participants: Investors can buy and sell shares through stockbrokers, who act as intermediaries between investors and the stock exchange. Online trading platforms and mobile apps have made it easier for investors to participate in the market.
- Price Determination: The price of a stock is determined by supply and demand. If more people want to buy a stock (demand), its price goes up. If more people want to sell (supply), its price goes down.
- Market Indices: Market indices like the Nifty 50 and the Sensex are used to track the overall performance of the stock market. These indices represent a basket of top-performing stocks from different sectors.
- Market Risks: Investing in the stock market comes with risks, including market volatility, company-specific risks, economic risks, and regulatory risks. Investors should conduct thorough research and seek advice before making investment decisions.

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