Markets Are Connected
No country's market is an island. Events happening thousands of kilometers away — a war, a central bank decision, an oil field disruption — can ripple all the way into Indian stock prices within hours or days.
Example: Oil Prices
India imports most of its crude oil from other countries. When global oil prices rise (say, due to tension in an oil-producing region):
- Companies that use a lot of oil/fuel as raw material or cost — like paint companies (oil-based raw materials) and airlines (jet fuel is a huge cost) — often see their costs rise, squeezing profits, which can pull their stock prices down
- Oil and gas producing/exploring Indian companies can sometimes benefit instead, since they may earn more on what they produce or sell
Example: The Dollar-Rupee Rate
The US Dollar and Indian Rupee exchange rate affects businesses very differently depending on what they do:
- IT (Information Technology) companies — Indian IT companies earn a large part of their revenue in dollars from overseas clients but pay most costs in rupees. When the dollar strengthens against the rupee, their dollar earnings convert into more rupees, often helping their profits and share prices
- Companies that import raw materials in dollars — face higher costs when the dollar strengthens, which can hurt their profits