Source: The Hindu Buisness Line
It created a massive disturbance in Indian markets when Sensex and Nifty dropped 16% from Sept 2024 to Feb 2025 with BSE companies losing around 94 lakh crore rupees. The US dollar has always created a strong impact on the growth of the Indian economy. The US dollar is a global currency and is accepted all across the corners of the globe. Indeed, it is one of the world’s strongest currencies. Additionally, it is considered one of the safest modes of investment source for many across the countries. Around 90% of forex trading and 40% world’s debt are issued in dollars. Whether you call it inflation or any kind of disturbance in the US dollar, the price of crude oil gets inflated and it therefore impacts the Indian economy and value of rupee.
Impact Of US Dollar On Indian Market Growth
There are biggest six currencies included in the US dollar index- the British Pound, Japanese Yen, Swedish Krona, Canadian Dollar, US Dollar, and Swiss Franc. As soon as this six currency index rises, the value of the dollar rises itself. The opposite of this works similarly for the value of dollar and all other major six currencies. The Indian rupee is not featured in this currency index but when the value of dollar changes against this currency index, it creates a huge impact on the Indian economy. The inflation in the value of the dollar creates an impact on the economy of many countries, including India. Talking about the Indian economy and its growth, the value of dollar impact deeply to the different segments of the country including the value of crude oil, value of rupee, Indian stock market, gold price value, and other major important segments. Here, we intend to discuss about Indian economy and how far it is impacted by the value of the dollar.
Indian Stock Market
The decrease in the value of Dollar makes INR currency to escalate. This allows foreign currency investors to get high returns on their investments in India. This further creates a great inflow of Foreign Institutional Investment (FII) and/or Foreign Portfolio Investment (FPI). Additionally, the inflow of FII or FPI causes buying pressure in the stock markets and eventually, the Indian stock market booms.
Metal Prices
Gold and its value are inversely proportional to the value of the dollar. Thus, the increased dollar index appreciates the value of dollar and the price of gold in India decreases. The same is true when compared oppositely. Demand and supply impact the price of gold and so the Indian market growth and the Indian economy.
Fuel Prices
Fuel and oil commodities are traded in Dollars and when it comes to India, the country is the largest importer of crude oil. If there is any change in the value of dollar or the dollar six currency index, it impacts the crude oil prices and thus the Indian economy. Any hike in the dollar’s value causes the crude oil to get costlier and this creates a deficit impact on the Indian economy - the overall India’s current account. Ultimately, the oil refineries, oil importers, and oil companies have a huge impact on their profits and the way the trading is done.
Inflation Of Indian Rupee
The dollar index affects the inflation trends in India and thereby the Indian market growth. The increased value of the Dollar causes a decrease in the value of INR. Additionally, the weekend value of rupee affects the import and trading behaviour of the country. The import activities become expensive for them thereby affecting their profitability as a whole. This inflation in the markets carries the prices of goods and services, creating a disadvantage for consumers. Thus, the GDP growth suffers a slowdown when the value of dollar increases or keeps strengthening.
On the other hand, the companies engaged in exporting the materials face profits because the increased value of the Dollar index favours their revenue. Particularly, IT companies and pharmaceutical companies (considered to be the primary exporters of goods and services) become more profitable with the rise in the dollar index and vice versa.
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