Confidence of FIIs and FPIs in the Indian stock markets also have a major impact on the direction of the markets.
- Amit Gupta
The Stock Market of a country is generally a reflection of how its economy has been performing over time. It may be impacted by sentiments and demand/supply factors in the short term, however in the long run it is driven by fundamental factors underlying the sectors and the companies making up the stock market. A stable government which can make quick decisions for economic reforms and for improvements in businesses proves to be very positive for the markets. It is very visible with the recent slew of economic reforms introduced by the government with regards to the Union Budget, tax reforms as well as PSBs mergers that such decisions can have quick and positive impact on the stock markets.
Consumption in India is huge, not just in food production but in various industries such as education, healthcare, electricity, automobiles, telecommunications, etc. This gives the companies an excellent opportunity for business as the gap between demand and supply in India is high. There is a need for innovative and efficient technologies to ensure that this gap is filled quickly and that capacities do not remain idle or underutilized.
Low cost of financing leads to a virtuous circle as it helps industries in increasing production of companies, thereby boosting their revenues and profitability. This in turn helps in jobs creation and increasing employment in the country, eventually leading to higher demand and higher consumption. When companies report higher earnings, they directly increase the value to their shareholders, and thereby impact the stock markets.
Global factors weighing on the stock market
Trade wars between US and China are impacting not just the Indian stock markets, but the global economy currently. However, I believe it is only giving a momentary movement to the markets, and will have little impact in the long run. Besides, a lot is heard on the street that production is moving out of China but are they coming to India or to other countries such as Bangladesh or Vietnam? There is an opportunity here and if India can emerge as the nation of choice for production facilities, it will have a huge positive impact on the domestic economy.
Confidence of FIIs and FPIs in the Indian stock markets also have a major impact on the direction of the markets. There are still large FIIs and FPIs which have not shown huge interest for investing in India, which could be an opportunity for the future.
Besides the above there are various other domestic and global economic indicators that impact the stock markets such as GDP growth rate, monsoons, Crude oil prices, interest rates (both Indian and US) and strength of the Indian currency against the Dollar. An investor must remain focused on all of these to make clear and informed investing decisions.
(The author is Amit Gupta, Co-founder and CEO at TradingBells. The views expressed are authors’ own)