The Indian stock market has its share of ups and downs. But unlike Vegas, whatever happens in the stock market does not stay in the stock market. The shock waves of the market crash and soaring green lines of the bull run both have a chain reaction in the other financial markets. How the Indian stock market treats its buddies, and more importantly, what does that have to do with your investments, let’s read here.
US stock indices
Now this one is a little tricky. How, you ask? The Indian Stock market runs very much parallel to the US market indices, which obviously indicates a high correlation. However, the currencies of both countries do not go hand in hand. From ₹4 for $1 in 1947 to ₹82 for the same dollar in October 2022, the exchange rate has moved up by a whopping 2050%. While this still means a positive correlation for both markets, the number stoops quite low. Over the last 20 years, Dow Jones and Sensex shared a nominal correlation coefficient of 0.36. Hence, US Stocks are a good option for your portfolio diversification.
India relies archly on imports when it comes to crude oil. Any swings in the oil prices result in a domino effect impacting other markets. In the case of the stock market, crude oil prices and equities share a 57% correlation in the long run. However, it is interesting to note that in the short run, the oil prices and the stock market were seen to run towards opposite poles.
The correlation of Cryptocurrency and Stock Market indices has exponentially increased in the past few years. In 2021-22, the correlation was calculated at 0.31. Hence, embracing crypto might be a good decision, but it wouldn’t provide much portfolio diversification noticeably.
A rising bond yield directly translates into falling stock prices. When the stock market crashes, retail investors and FIIs(Foreign Institutional Investors) prefer shifting to bonds since they are a safer bet. The percentage of bond yield increases and eventually starts competing with the ROI of equities. It becomes a no-brainer that equities and bond yields share a negative relationship.
Apart from being the charm enhancer to the beauty of Indian Womanhood, gold is also an investment giving consistent and steadfast returns. It shares an inverse relationship with the Indian Stock Market. However, many Indians consider gold jewellery an investment that later ends up becoming a damp squib. This happens because the resale value of gold jewellery highly depreciates over time, and one doesn’t get money on the making cost of jewellery. Hence, one must prefer digital gold for investing. It is secure, ensures purity with no additional storage cost, and gives you full ownership of your gold.
Well, what is your refuge from a stock market crash? Are there any other avenues to divert funds when the market goes down? Let us know in the comments below. In case you are new to the stock market, we hope this article helped you with insights.