IMPACT OF OVERSEAS MARKET

Markets across the world are seeing a lot of short term volatility (frequent rise or fall
in stock market) mainly driven by news and events in the global markets. For
example, news/rumours related to economic recession in USA, soft/hard landing and
estimation of losses due to sub-prime crisis in USA, speculation over interest rates
cut by FED, rise in global commodities prices, fluctuation in global crude oil prices
etc. These are some fundamental reasons why global markets have an impact on
the Indian stock market.,

Global economic trends have an impact on the Indian stock market. Indian economy
is increasingly exposed to global markets post liberalization in the early 90s.
This is a result of the Indian economy being exposed to global markets. Opening of
Indian economy also reduced price differential of a product or service that was
present in the closed economy. For example pre-liberalization, prices of commodities
like petroleum products, airfare, steel etc were very much controlled by the
government. The prices of these commodities are governed by the global markets
and hence are more likely to be affected by the development in world economy.
Similarly, there was huge price differential in the cost of service between India and
global markets. Slowly with time, this difference is also getting reduced.

Over the years, India has witnessed large fund inflows into the Indian market in the
form of FDI(Foreign direct investments) and FII(Foreign institutional investors). Most
of these are big players and their activity in the market results in large volatility in
stocks. Investment decisions of these funds are driven and depend on the situation
in foreign markets.or their own local markets. As a result, we are seeing our Indian
stock market getting more integrated with the global stock markets.

USA economy is the largest economy in the world. A lot of small and large countries
mainly depend on exporting to American markets (for example China). As a result,
analysts track the news related to USA very closely (for example weekly USA
employment numbers, sub-prime crisis of USA, FED interest rate movement etc).
Whenever we see any negative news triggered from the American markets it triggers
a tsunami in global markets especially in short term.

Indian economy is mainly driven by the domestic consumption, but post liberalization
the share of Indian trade as part of global trade is growing at a rapid pace. India's
economy has grown over USD 1 trillion and ranked as the eleventh largest economy
in the world. A large number of Indian companies are getting involved in exporting
their products to global markets, raising funds by listing on foreign stock exchange
(NYSE, London Stock exchange and NASDAQ etc). Revenue for Indian companies
from foreign markets is increasing annually. Therefore, the share price movements
of these companies are more likely to be affected by the development of the world
economy.
In case of a global recession, companies are unable to sell their products overseas.
This leads to a plummet in revenue, affecting the stock prices as well. If foreign
exchanges drop, then it may lead to investors anticipating a ripple effect, resulting in
a decline in the country's stock exchange. In the era of globalisation, the crash of any
market can have a global impact. With any crash, investors start feeling insecure and
nervous and that will have an effect on other markets.An example that can be seen
is of the 2008 recession. The year 2008 is regarded as the year of the global
financial crisis. The crisis is considered to be one of the worst financial crisis since
the Great Depression of the 1930s.

It started in 2007 with a crisis in the subprime mortgage market in the United States.
This eventually turned into an international banking crisis with the collapse of
heavyweight investment bank Lehman Brothers on September 15, 2008. Bailouts of
financial institutions along with monetary and fiscal policy was put to use with the aim
to prevent a possible collapse of the world financial system. The Chronology of 2008
recession was as follows:

January 21, 2008

The benchmark index witnessed the sharpest correction ever losing as much as
1408 points. The day, often regarded as Black Monday, resulted in a high degree of
volatility that panicked investors. The sharp decline was a reason for the weak global
cues amid fears of the US recession.

January 22, 2008

The fall continued for the second day with the BSE Sensex hitting a low of 15,332,
down 2,273 points. However, over the day the index managed to recover a portion
and closed at 16,730. The day witnessed trading suspension during the initial hours
as the benchmark crossed the lower circuit limit of 10% thereby spiking trading halt
February 11, 2008
The Sensex lost nearly 5% as the global concerns continued.

March 3, 2008
The Sensex lost nearly 900 points on frantic selling by funds. The sell-off was
triggered by deepening concern over United States recession and some Budget-
related matter.

March 17, 2008

The index corrected by 951 points to close at 14,809 owing to weak overseas market
and unabated selling.

October 24, 2008

The index plunged as much as 1070 points to close at 8701. The crash was led by a
massive sell-off in the small-cap and mid-cap counters. The worst hit stocks in the
Indian stock market were DLF, Ranbaxy Laboratories Hindalco Industries, Tata
Motors, Reliance Industries and Mahindra & Mahindra.as they fell into the
automobile and real-estate structure which were the worst affected.
While many stock prices of the Indian companies were badly hurt and with the
domestic markets being held hostage to possibly the worst financial crisis, defensive
stocks naturally come out on top. Defensive stocks such as FMCG and pharma
performed well amidst the crisis. The top gainers were:

 Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is an Indian fast-moving consumer goods (FMCG)
company that is headquartered in Mumbai, Maharashtra and is a subsidiary of
Unilever, a British-Dutch company. HUL’s product portfolio includes foods,
beverages, personal care products, water purifiers, and the likes. During the crisis of
2008, the company remained a star performer gaining double-digit growth.

 Hero Honda (currently named as Hero Motocorp Ltd)

Hero Motocorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter
manufacturer. The Delhi based company is the largest two-wheeler manufacturer in
the world. What’s incredible regarding Hero’s performance during 2008 is that
despite the weak performance of the sector, the company delivered some splendid
numbers due to its brand recall. The company utilized the purchasing power of the
rural area and thus wasn’t hurt badly during the year. The strong performance
resulted in the company’s stock climbing nearly 15% during the year.

 GlaxoSmithKline Pharmaceuticals Ltd.

GlaxoSmithKline Pharmaceuticals Ltd (GSK) is the subsidiary of GlaxoSmithKline
plc. The company is one of the oldest pharmaceuticals companies in India and sells
prescription medicines and vaccines. The company delivered close to 11% during
the year.

I believe HUL and GSK performing well during 2008 is not surprising as that is the
kind of bet one can expect from investors. During crisis or period of high volatility,
investors shift to defensive bets, and FMCG and pharma indices are the best
performers among defensive.

COMPANY RELATED FACTORS

It is obvious that if a company has public shares, then anything that is happening
within the company will directly affect the share price which is in a way is directly
affected by the Investor sentiment. How the stock market performs has a direct
relation with the way investors are putting in their money. If investors are taking
greater risks and investing aggressively, then stock prices will go up. On the other
hand, if investors are more subdued, choosing safety over risk, then the stock prices
will come down. There are two factors in this aspect:

 Bullish market:

A bullish market is one where the investor is much more confident while taking risks
and invests in a much more aggressive manner. When more people are investing
confidently, the demand goes up, leading to increased stock prices.

 Bearish market:

A bearish market is one where the investor is more worried about risks and losing his
or her investment and therefore, invests with lesser confidence with safety in mind.
This causes the stagnation of the market and the stock price eventually comes
down.
After a basic understanding of this concept, we can directly understand the investor’s
investment decisions. So, if the company is on the rise, with successful product
launches, increased revenue, reduced debt, and more influx of investor capital, then
the stock price of the company is bound to increase, because everyone would want
to buy shares of such a company that is going from strength to strength and
investors will be much more confident while taking risks for this particular company
and will invest in a
much more
aggressive
manner. When more
people are investing
confidently,
the demand goes
up, leading to
increased stock prices.

However, if the company

is incurring
losses, having
product failures,
amassing debt, has
done any financial

scandals/fraud, then a majority of the shareholders would want to dump the shares
of such a company as it is no longer a reputable and profitable company according it
its performance. This will reduce the demand and hence, reduce the stock price of
the company’s share.

An example of the company related factors can be seen from this example of Dewan
Housing Finance Ltd. DHFL is a deposit-taking housing finance company and It was
found that a financial scam of more than Rs 31,000 crore was done in which the
primary promoters of Dewan Housing Finance Corporation Limited (DHFL) and their
associate companies committed a systemic fraud to siphon off public money. DHFL
came into more trouble after it was found that the company, through layers of shell
companies siphoned off Rs 31,000 crore out of total bank loans of Rs 97,000 crore.
This created a mistrust among the shareholders of the company and investors sold
off their stocks as they did not want to be a part of a company which is doing
malpractices which will further lead to a bad reputation and most importantly, huge
losses. The Current prices of the DHFL stocks has come down to Rs.15.6 from a
whopping Rs. 700 from the yesteryears due to this reputation/goodwill destroying
scam and fraud done by the company.

https://groww.in/blog/stocks-affected-recession/

https://www.kotaksecurities.com/ksweb/articles/the-stock-market-
story-why-do-indians-worry-about-us-markets

https://www.adityabirlacapital.com/abc-of-money/factors-affecting-
stock-market
https://economictimes.indiatimes.com/why-indian-stock-market-is-
affected-by-global-economy/articleshow/2677826.cms?from=mdr