Should you follow the global market like Dow Jones, Sgx Nifty Index etc to trade in India ?

global market dow jones
Should we follow Global Market Like Dow Jones, Sgx Nifty to trade in India

Should you follow the global marketThis is a common question arises on every investor's mind "Should we follow Global Market like Dow Jones, SGX Nifty Index, Nasdaq, FTSE etc. to invest in Indian Stock Market". To know the answer you have to be honest with yourself to define the time horizon of your investments. Whether you are long term, mid-term, short term or very short term investor. If you are a long term investor then definitely you don't have to follow the global market like Dow Jones, FTSE, SGX Nifty Index etc on regular basis. If you are Speculator, Trader, or short term investors then the answer is "Yes" you have to follow the global market.

Many a time we have seen if the global markets in the US and Europe were down on the previous day then the Indian market also opens in the negative zone. This affects on your open position, if your positions in the market are open for short term then you definitely need to follow the global market like Dow Jones FTSE, SGX Nifty Index etc to minimize the risk of your open position.

Not only this short term trader or speculator need to know the weightage or market capitalization of the global markets. You cannot follow Bangladesh or Sri Lankan Stock market to predict the movement of the Indian stock market.

Classification of Global Market:

The global market has been classified into three categories namely developed, emerging and frontier market. The US markets Dow Jones, Nasdaq falls in the developed market whereas Indian and Bangladesh falls under emerging and frontier market respectively. You should be very clear which global market to follow and when and how to follow those markets. The frontier market hardly plays any role to influence the Indian stock market, so we need to follow mainly developed and emerging market.

The contribution of modern technology and internet penetration also play a key role in linking various global markets like Dow Jones, FTSE, DAX, Shanghai, SGX Nifty Index, Sensex etc together. Investors and traders can now virtually trade/invest any market across the world. It has now become much easier not only to follow or track global market but also can invest/trade in these global market at a single click.
FII attract emarging market
FIIs attract emerging markets most

Role and Contribution of FIIs:

The post-liberalization or after internationalization of the financial market in the early 1990s, the Indian economy has got tremendous exposure in the global market. This has not only helped to step up GDP growth rate but also attracted and opened the door of Foreign Institutional Investors (FIIs) for investment in Indian Stock Market. Most of these FIIs are large momentum players and their activity in the Indian Stock Market results huge volatility.

The Foreign Institutional Investors (FIIs) plays an important role in the Indian stock market. FIIs being a momentum player cannot deny their involvement in making the Indian market a volatile one. Now, let us know some more details about FIIs like where they come from, how they trade and how much they are involved in the Indian Stock Market?  

Foreign Institutional Investors (FIIs) are entities established or incorporated outside India and are registered with SEBI as per norms set. Gone are the days when Indian Stock Market used depends on retail investors only, nowadays other than Domestic Institutional Investors (DIIs), FIIs are the main source of liquidity in the Indian stock market. If they book profit continuously for few days Indian Stock Market will be down and if they are back again, market sentiment improves.

Global Market Influence on Indian Stock Market:

Recently we have heard about US government shutdown, the US market (Dow Jones, Nasdaq)  was down and even global cues were negative. This had an impact on the Indian stock market also, our market reacts negatively on that news. This is because of investment decisions of foreign funds are also depends on developments/events of the foreign market, their own local market. As a result, day by day, we are seeing our Indian stock market getting more and more integrated with the movement of the global events.

Foreign Institutional Investors (FIIs) invest across the world and whenever there is any positive news in any market like GDP numbers, Inflation, Interest rate etc, foreign funds started flowing into that market and vice versa.

It totally depends upon the FIIs and their fund manager and traders on which market to invest. FIIs are more attracted to emerging markets because of its growth prospect. In the emerging market, India and China are the most attractive as per growth perspective and stability.

You may also like to read: Stock Market trading holidays 2019: NSE | BSE


So now we know that the global markets like Dow Jones, Nasdaq, FTSE, DAX, SGX Nifty Index play an important role to create volatility in the Indian Stock Market. But if you are long term investors then you need not to follow the global market on day to day basis because the volatility is for short term

If you are a trader or speculator then, of course, you have to keep yourself updated with few global markets which can directly influence Indian Stock Market. Say for eg. in the morning you need to check out previous days closing of the US and European markets like Dow Jones, Nasdaq, and FTSE, DAX and CAC. Again just before opening Indian Stock Market, you need to update how Asian Markets are performing like Nikkei, Hang Seng, Shanghai and the most important is SGX Nifty Index.

If the US and European market closed in positive on the previous day and Asian markets are green then you can predict that the Indian stock market will also open in positive. So in this way you can get the direction of Indian Stock Market by following global markets on day to day basis.

Hope you liked the article, please don't forget to share with others.

Happy Investing!

Finogyan team

Should you follow the global market like Dow Jones, Sgx Nifty Index etc to trade in India ? Should you follow the global market like Dow Jones, Sgx Nifty Index etc to trade in India ? Reviewed by Finogyan on January 21, 2019 Rating: 5

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