While American, Japanese and South Korean markets suffered substantial losses, the Indian indices gained more than 10 per cent. This rally shows how the same international developments can produce contrasting consequences for different economies
The bulls appear to be back on Dalal Street, if one goes by the remarkable resilience shown by the Indian equity markets in the last seven consecutive trading sessions. Despite a global sell-off, the Sensex surged 1,718 points to close at 81,028, while the Nifty reclaimed the 25,000-mark.
While American, Japanese and South Korean markets suffered substantial losses, the Indian indices gained more than 10 per cent. This rally shows how the same international developments can produce contrasting consequences for different economies.
There are four important factors behind the rally — declining crude oil prices, rout in artificial intelligence stocks, hope of India-US relations stabilising and falling yield of US treasury bills.
The most important factor is the sharp decline in crude oil prices. It was the same crude oil, which brought down the stock markets, when it was rising. As India imports nearly 90 per cent of its crude oil requirements, falling prices reduce its import bill, ease inflationary pressures, strengthen the external balance and improve corporate profitability.
While American technology stocks are facing concerns over tighter regulation by the Democrats-led Congress and excessive artificial intelligence investments, Indian investors anticipate that the changed political equations in Washington could encourage a negotiated settlement of the US-Iran conflict, and stable India-US relations.
US Treasury yields have declined steadily from around five per cent to 4.85 per cent, with a near-term downward bias of four per cent to 4.3 per cent. When US yields decline and the dollar softens, currency pressure on emerging markets such as India eases and foreign Institutional Investors (FIIs) often shift money into higher-growth economies like India.
The real test will be whether lower oil prices translate into sustained economic growth and corporate profitability. India's present advantage is encouraging, but its durability will depend on economic fundamentals rather than speculative optimism.
