Global trade plays a crucial role in the economic growth of a country and India is no exception. Imports and exports form the base of this global trade market. The million-dollar question, however, is whether they affect the Indian stock market. The answer? Absolutely. Since we have cleared that up, here’s where we get to the “How” of this impact. By understanding how India’s imports and exports affect the stock market, investors and market participants will have a better chance of making more profits.
A free stock market app could also help investors keep track of how the trading patterns of the country are affecting the market.
The Effect on the Stock Market
The stock market can easily be affected by any kind of economic activity in the country. This includes the movement of the country’s imports and exports. With changes in the level of exports and imports, stock prices will also be directly or indirectly affected. Below is a list of all the aspects of the stock market that the imports and exports of a country will affect.
From Trading Firms
Firms that are exceptionally dependent on either imports or exports internationally will see their stock prices fluctuate with changing trade volumes or trade policies. If there are export trends that are taking a positive shape, then the stock prices will rise for companies involved in exports. However, when it comes to companies relying on imports, a rise in import costs might cause their stock prices to drop.
From Trading Deficits or Surplus
Every country has a trade balance to maintain, which is the difference between exports and imports. This balance or lack thereof can also affect the stock market. A trade deficit happens when there are more imports than exports will affect the stock market negatively as they are considered staining for the economy. However when exports surpass imports, also known as a trade surplus, an investor’s confidence in the stock market increases as it signifies a stronger economy.
From Exchange Rates
Currency exchange rates play a huge role in determining the movement of the stock market. If the Indian rupee is weaker, exports become more competitive and imports more expensive. This might cause export-oriented companies’ stocks to rise but diminish the stock value of import-reliant businesses. However, if the rupee has a stronger hold, it will have the opposite effect on the stock market.
From Taxation
A luxury tax is a tax that the government imposes to help domestic producers when the demand for luxury products, specifically by the middle class, increases. This tax also helps control the import volumes. In cases where the government want to reduce the imports in the country, it can increase the luxury tax on goods. With an increase in the luxury tax, costs go up and profit margins decline. This results in a fall in stock prices. Inversely, the government can reduce the luxury tax if it wants to encourage imports, resulting in costs going down and stock prices going up.
From Import of Capital Goods
Many factors help with the industrial development and economic growth of our country. India’s imports of capital goods like machinery and equipment happen to be one of those factors. If the country is heavily investing in the imports of capital goods, it could indicate potential expansion plans and investments. This, in turn, will lead to a rise in the stock prices of companies.
From Imports
There is no doubt that sometimes imports are necessary to gain access to goods and services that are not available domestically. However, heavily relying on such imports will end up creating trade deficits for the country as well as the various industries that the country houses. With high trade deficits, the stock market will see a downward trend.
In Conclusion
As any online trading platform India plays host to will agree, there is no doubt that imports and exports affect the stock market and its various aspects. Everything connected to the import and export of a country, like exchange rates, trading firms, trade deficits and surplus etc, will all affect the stock market. This is why investors must consider all these aspects before they invest in the stock market or specific companies involved in the trading industry. Investors can also take the help of a stock market app to determine which stocks are worth investing in when it comes to the trading industry.