How Exports & Imports can Affect the Indian Stock Market?


Equirus Wealth

02 Feb 2023 4 min read

Stock Market#Stock Market#Investment

Indian imports worth $495.83 billion from the US and exported goods worth $335.44 billion to the US in the 3 quarters of FY 2021-22. With these voluminous numbers, it is reasonable to wonder whether or not they have an impact on the stock market. What occurs, and how does the stock market react when imports or exports decline or increase? Continue reading to learn more about it!

India now enjoys easy access to international products and services because of globalization, and the Indian Subcontinent can sell its commodities and services abroad. With the globe becoming a global village, there has been an increase in demand for foreign items on the global market. As a result, imports and exports are now vital components of the Indian economy.

Firms directly involved in the import and export of goods and services:

Businesses that are directly involved in the import and export of products and services are likely to be impacted by any drastic change in import and export numbers. The profitability of import corporations and the value of their stock both rise when there is a high volume of imports. If a huge volume of goods and services are exported, then it indicates that Indian businesses are entering new turfs. As a result, the share prices of these export companies rise. If things turn unfavorable, enterprises that are focused on imports and exports have a negative impact, and their stock values decline.

Trade surplus or deficit

Beyond their separate impacts, the combination of imports and exports can have an impact on the stock market. This is a result of the deficit or excess in trade. When a nation's imports are greater than its exports, a trade deficit results. On the other hand, a trade surplus occurs when exports outpace imports. For a nation, a trade surplus indicates that the economy is flourishing. On the contrary, if there is a trade deficit, then the economy is dwindling. However, it is important to strike the right balance as some companies benefit from either of these scenarios, and excess of any of the scenarios could potentially harm the economy as a whole.

A nation is considered to be in a huge debt if it continually has a large trade imbalance, it could easily slip into a financial crisis. Due to this, international investors lose faith in the domestic market and begin to withdraw their money. The stock market is badly impacted by this. Furthermore, a big imbalance either indicates that consumers are spending more money on imported items than on domestically produced goods or that domestic businesses are having trouble selling their products overseas. This also harms domestic producers and their stock values. A surplus benefits the stock market, but too much of one is detrimental. A trade deficit of less than 3% of GDP is considered an expansive phase for the country.

Impact on the economy:

Certain countries may engage in the practice of dumping their commodities. This is most frequently observed in the electronics, chemical, and consumer durables markets. These products are exported in enormous quantities from nations like China to nations like India, with negative effects on local manufacturers. The low prices of the imported items are frequently too low for them to compete, and they lose money, which lowers the value of their stock.

You Might Find Interesting - Impact of the Global Economy on the Indian Stock Market

There is a strong relationship between international trade and capital markets. While evaluating a stock as a silo, we need to check the quantum of impact import-export is likely to have on the company. This, along with many other factors, could help us deduce the prospects of the company comprehensively.

Top Mutual Funds

3Y Returns

Nippon India Mutual Fundimage

Nippon India CPSE ETF

AUM:  42,632 Cr
Kotak Mahindra Mutual Fundimage

Kotak Nifty PSU Bank ETF

AUM:  1,478 Cr
ICICI Prudential Mutual Fundimage

ICICI Prudential Bharat 22 ETF

AUM:  18,904 Cr
ICICI Prudential Mutual Fundimage

ICICI Prudential Bharat 22 FOF

AUM:  1,577 Cr
Get your portfolio reviewed for free