We will discuss what’s going on in the USA that is causing global market tensions. And importantly, should you be concerned?

The story

Last week, the S&P 500, the major U.S. stock index, fell by 4.25%, marking its worst week since March 2023. Following this, the Nifty 50 and Sensex also dropped by over 1% last Friday.

The reason? The good news is the bad news! The major reason for this fall was stronger employment numbers than expected. Markets reacted negatively to better employment numbers. That’s strange, right?

Why the Negative Reaction?

Markets are anticipating a rate cut from the U.S. central bank, the Federal Reserve (or the Fed), to boost the economy. Lower rates would make borrowing cheaper and drive growth. However, strong employment numbers indicate the economy is doing well, so the Fed might delay rate cuts which means higher rates could stick around for longer.

How does it affect India?

  • Trade: India is a major exporter of services, with the top export destination being the USA. So if the US faces an economic downturn, our exports would take a hit.
  • Investments: If the Fed lowers interest rates, US bonds become less appealing, while countries like India, offering the potential for higher returns, become more attractive to investors.
  • Foreign Exchange : More investment coming into India would translate into higher demand for INR, strengthening of domestic currency against USD.

Should Indian investors be concerned?

The short answer is no.

While there may be some short-term market turbulence, long-term investors have little to worry about. India’s economy is resilient, largely driven by strong domestic consumption and investment. Over the past decade, India’s GDP has nearly doubled—from $1.85 trillion in 2013 to $3.7 trillion in 2023. Domestic consumption now accounts for nearly 60% of the economy, making India less reliant on external factors like a U.S. recession.

For long-term investors, the focus should remain on the bigger picture – staying invested in India’s growing market.