Our Bureau
New Delhi
India’s economy is less exposed to the slow economic growth in the United States due to its less trade dependency, but the stock markets of both countries are largely correlated, says a report published by investment bank and financial services firm Goldman Sachs.
It said, “While the Indian economy is relatively insulated from a US slowdown compared to other markets that have higher trade with US, there is a strong correlation between Indian equity markets with the US market”.
Underlying the lesser co-dependency, the report highlighted India’s merchandise exports contributing a mere 12 percent to its GDP whereas the same stood at 19 percent and 82 percent for China and Vietnam, thus giving India a strong insulating economic cover from a US slowdown. The story, however is different when equity markets of both India and US are at play.
According to Goldman Sachs, the movement of the Indian stock market, particularly the Nifty 50 Index, has shown a strong correlation with the S&P 500 Composite Index in the US over the past decade. Keeping aside a different momentum between the indices of Nifty 50 and S&P 50 from 2005 2015, the movement has been largely similar thereafter. Following the COVID-19-induced market crash in early 2020, both indices recovered strongly and reached new highs by late 2021. Although there have been minor dips along the way, the overall trend for both markets has been upward.
It is noteworthy to mention a significant influence of US slowdown on merchandise exports and container traffic at Indian ports which is due to US being a key trading partner for India. It accounts for 17.7 per cent of India’s exports and 6.2 per cent of its imports. The report also mentioned the need for monitoring India’s cost-structures and profitability while it still faces the possibility of short-term economic hurdles.
