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Sample essay on Factors Affecting Indian Stock Market

Factors Affecting Indian Stock Market

The stock market in India is one that has been a great pillar in the country’s economy. This is because it is the focal attraction point for many investors in India. Thus, it is very important that any individual investor or company that aims to start any investment in the country need to first study the market well, and also the factors that impact the stock exchange. With this, it will be easier to have a clue of what to expect when investing in the Indian stock market.

Political stability is one of the factors that impact the stock market in India. In the recent years, India has not been faced with uprising caused by political unrest. In fact, the country has been generally been quite peaceful, giving a good atmosphere for business. This has played a crucial role in attracting several investors from various parts of the world into the Indian stock market. If the peaceful atmosphere prevails for quite a long time into the future, it is expected that the stock market in India will be able to perform even much better since many potential investors are getting swayed into the market.

The international crude oil prices and inflation are yet other factors that also greatly impact the Indian stock market; however, most investors overlook this factor. The reason why this is so is because, India imports almost 80% of crude oil from the international market. As a result of this, any significant change in the price of petroleum creates a change in the inflation numbers, thus impacting the stock market. It should be noted that inflation can either shift the stock market upwards or down.

Government policies also have an impact on the stock market in India. For instance, the policy paralysis of the UPA-2 was a setback to the stock market and left so many traders in confusion. However, this was turned the other way round when the government hiked diesel prices and FDI in the aviation and retail sector. In fact, the later played a major boost to the stock market moving it up to a close of 1,000 points within just a few days’ period. While it is viewed that the government empowers the tock market through regulations, its policy announcements provide growth impetus.

Monetary policy and repo rate also impact the India stock market. Changes in the repo rate have negatively affected many banks in India for a long time. The continuous increment in the repo rate over the years has badly affected the stock market. Each time that the Reserve Bank of India hikes the repo rate, there is a negative reaction from the market that experiences a down turn. This has been the impact of the various monetary policy measures that the Indian stock market is keen on paying much attention to.  As a good investor, it is always important to keenly watch the repo rate and entire monetary policy for the central bank since they both have great bearing on the stock market’s performance.

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