Global Sell-Off Could Benefit Indian Stock Markets

The Indian stock markets have shown signs of recovery in the last two weeks. Both NSE Nifty and BSE Sensex have managed to pick up the lost glory to some extent. BSE Sensex ended last week gaining 1921.16, while NSE Nifty grew by 569.40 points. This development was witnessed after Nirmala Sitharaman slashed the corporate tax rates.

Indian markets have been successful in keeping global factors away from affecting them. On Thursday, 3 October 2019, the Indian markets did not fall on the lines of a slump in the US markets. Both Nifty and Sensex were hovering around a decline of about 0.8% from where they closed on the previous day.

A major reason behind the stability in the Indian markets could be the expectation of the Reserve Bank of India (RBI) to roll out another cut in the interest rate in its October policy review meeting. If the US markets start correcting, the emerging markets, including India, will probably begin receiving inflow from foreign portfolio investors (FPIs).

The US stock markets were the least affected due to the China-American trade war. Eventually, they too, have taken a hit. However, there are signs of the revival in smooth trades between the two global giants shortly, which is a positive development, resulting in the markets to go up.

Also Read: Markets are Gripped by Bearish Trend in October Since a Decade

After imposing tariffs and duties on the Chinese products, the US has now turned its back towards the goods of the European Union by proposing tariffs of about USD 7.5 billion. Citing a new trade war between the US and the European Union, the investors have panicked as they don’t see a quick resolution.

Until now, manufacturing was the only sector that was hit by the ongoing trade war. Looking forward, there are signs of a dip in consumption. The US stocks will start losing their current high value if the consumption is hit, leading to unemployment. The quarterly reports of General Motors and Ford are not encouraging.

This year, the US indices have been fluctuating. The Dow Jones industrial is only 3% below its all-time high. Nasdaq Composite is the best performing index in 2019 so far and has gained nearly 19%. The MSCI US index headed towards its fresh high in the fag end of September.

Once the US stocks begin to decline, the foreign portfolio investors will generally turn towards investing in the emerging markets as they offer a much better prospectus of growth. With the Finance Minister announcing a cut in the corporate tax and withdrawing the increased surcharge, the FPIs are sure to return to Indian markets.

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in.