Rule one of investing money in stocks is to understand how and why markets move up or down. When it comes to Indian market fluctuations, we need to understand the movement of Global markets specifically the US Market. The global uncertainties such as movement of the dollar against euro or political problems between the countries or war like situations tumble the International markets. The movement of the international markets affects the Indian stock exchange.
When we speak about movement in the international markets the change in the interest rate by federal reserve is a kind of key to understanding the upcoming movements of the stock exchange. Many top Stock market experts such as Warren Buffet have suggested that interest rates are the place where you need to look when you are doing market valuation. The interest rate changes did by the fed or Federal Reserve decides the movement of Dollar and the dollar movements impacts Indian stocks. Indian stock market always has a kind of influence by the dollar movement. The Dollar movement is inversely proportional to the Indian stock exchange. If Dollar goes up then Stocks comes down. Similarly, If Dollar drops then stocks rise.
Dollar VS Rupee
Strong Dollar makes the rupee weak. Weak rupee impacts foreign investors. The foreign investors invest in Indian stocks by converting Dollar into Rupee and after selling the stocks while converting from Rupee to Dollar if the Dollar is higher than rupee then they will see a loss. They will get fewer dollars in exchange due to the weak rupee value. So whenever there are chances of Dollar getting stronger due to the interest rates or any other aspects foreign investors take safe heavens by selling off their stocks in the Indian markets and starts investing in other national markets. The local investors who invest in the Indian markets move their money from equities to commodities such as gold to restrain losses. This kind of outflows of investments from the equities affects the markets. This brings volatility in the Indian markets.
Similar to foreign investors who invest in the Indian markets, there are Indian investors who invest in foreign markets. As the investment method has become easier, thanks to the internet. There was a time if you want to invest in the foreign markets there was a lot of hassle to buy sell or money conversion. But now things have become very simple. All you need to do is to find the right brokerage firm and open an account with them. All the currency conversion problems and other aspects will be taken care of by the brokerage firm. Investing in the foreign stock exchange is like just clicks away. But there few guidelines given by the RBI which needs to be followed such as an individual is allowed to remit up to the U.S. $250,000 per financial year not more than that.
The Indian investors who invest in the foreign markets follow the foreign investor’s footsteps in a way. If there are chances of any drop in Indian stock markets then they move their funds from Indian stocks to some other countries stocks. The diversification of investment and opportunity to invest in bigger players makes the Indian investors stick with the foreign stocks and they stick on to the other countries weakens the Indian stock markets and the Indian economy.
Than going for foreign investments. Investors can stick on to the Indian stocks and understand the fluctuations of international interest rate and help to grow the Indian economy. To understand the fluctuations of fed interest rates of top countries US. There are fa ew aspects which intimate the rise or drop of the interest rate.
Demand Vs Supply
The first aspect that affects the interest rate is the supply and demand for credit. If the demand of the credit goes up gradually interest rate will also increase whereas if the supply is up and demand is down then the interest rate goes down to maintain the balance. Whenever there is a drop in demand for credit the fed comes with dropped interest rates on the loans to increase the demand to balance the demand against supply.
Monetary policies play a vital role in the change of interest rate. If there are any changes in the policies by the government or if any other other countries government plans on changing their monetary policies, the interest rates tumble. So the following news on the monetary policies will give the clue about what will be the upcoming turn in the interest rate that’s going to take in the near future. The economist, investors and financial experts follow the news on meetings regarding monetary policy to guess the upcoming change in the interest rates.
Change in governments brings change in the interest rate as well. Inflation is also a major aspect to be considered to understand the change in the interest rate as it has a very close relationship with the interest rate. As the price of goods and services increases the movement of the money takes pace. The international issues such as Brexit or war kind of situations move the interest rates as well.
Following the change in the interest rate, the markets move accordingly. So whenever there is a fluctuation in the interest rates there will be a movement in the Indian markets. If there is a positive moment then there will a positive impact on the economy as there will be a good flow of investments into the equities. Whereas if the situation is another way around then the investors make way for safe heavens which impacts the economy negatively due to the outflow of money from the equities.