Stock Market

How do global events impact the Indian stock market?

From global shocks to local trades, discover how world events ripple into Indian markets and how you can adjust strategies to protect your portfolio.

Team Dhan

18 Aug 2025 — 4 min read

Photo by Martin Sanchez / Unsplash

Markets are rarely isolated. A policy shift in Washington, an oil price surge in the Middle East, or a banking crisis in Europe can quickly send ripples across the globe — eventually reaching Dalal Street. For Indian investors, this interconnectedness means volatility is not just born out of local news but also from events unfolding thousands of miles away.

While domestic factors like government policies, company earnings, and economic data shape market movements, global events often amplify the swings. They influence investor sentiment, trigger changes in foreign investment flows, and shake overall market stability. For anyone navigating today’s markets, understanding these global linkages is key to managing volatility more effectively.

Key global events

Over time, different global events have caused changes in the Indian stock market. The table below shows some of the main events and their origin:

Global Event	Affect on the Indian market
2008 Global Financial Crisis	Global stock prices dropped, foreign investment was cut down, and the economy began to slow down.
COVID-19 Pandemic (2020)	A downturn came from lockdowns and issues in the supply chain, but later things improved with stimulus.
Conflicts in US-China trade	More uncertainty; sectors relying on exports saw problems and fluctuations in stock prices.
Russia-Ukraine Conflict	Oil prices increase, leading to inflation in the energy and transport sectors.
US Federal Reserve Interest Rate Hikes	Less investment coming into India, a drop in the value of the rupee, and increased difficulty in getting loans.

The mechanisms of global influence

1. Foreign Institutional Investments (FIIs)

Foreign investors play an essential role in the Indian stock market. Global economic conditions often influence their investment decisions. For instance, during periods of global uncertainty, FIIs may withdraw funds, leading to a decline in stock prices, cash flow, and increased market volatility in India. Conversely, positive global cues can attract foreign investments, bolstering market performance.

Global Trigger	FII Reaction	Impact on Indian Market
US Fed Rate Hike	FII outflows	Stock market decline, INR depreciation
Global Economic Stability	FII inflows	Bullish sentiment, increased liquidity
Geopolitical Tensions (e.g., war, sanctions)	Risk aversion; withdrawal from EMs	Higher volatility, lower investor confidence
COVID-like Global Pandemic	Initial withdrawal followed by cautious re-entry	High short-term volatility, long-term sectoral shifts

2. Currency fluctuations

Global events can lead to fluctuations in currency exchange rates. A strengthening US dollar, for example, can result in the depreciation of the Indian rupee. This affects import costs and corporate earnings, leading to inflationary pressures, influencing investor sentiment, and market volatility.

Event/Trigger	Effect on INR	Market Consequences
Strong US Dollar (due to Fed hike)	INR weakens	Costlier imports, wider CAD, inflation risk
Crude Oil Price Surge	INR depreciates	Fuel inflation, negative sentiment in transport & aviation sectors
Global Recession Forecast	INR may appreciate in the short term	Lower import bill and export pressure due to weaker global demand
Political Instability in Emerging Markets	INR volatility increases	Safe-haven demand for USD, equity market pressure

3. Commodity price changes

India imports a significant portion of its crude oil. Global events that lead to oil price fluctuations directly impact transportation costs, inflation, and the profitability of various sectors. Such changes can cause shifts in market dynamics and investor behaviour.

Commodity	Global Event	Impact
Crude Oil	Middle East conflict, OPEC supply cuts	Fuel cost rises lead to inflation that affects transport, aviation, and FMCG sectors
Gold	Global uncertainty (war, inflation)	Gold prices rise, leading to inflows into gold ETFs, signalling risk aversion
Industrial Metals	Chinese slowdown or export restrictions	It affects metal stocks and the construction/manufacturing sectors
Natural Gas	Disruption in Russian supplies	Energy cost spikes will impact the power, fertiliser, and manufacturing sectors

The sectoral impact

Different sectors respond uniquely to global events. The table below outlines the sector-wise impact:

Sector	Impact of Global Events
Information Technology (IT)	Sensitive to global demand; affected by currency fluctuations and outsourcing trends.
Pharmaceuticals	Influenced by global health crises, demand surges during pandemics.
Energy	Directly impacted by global oil price changes, which affect production and transportation costs.
Manufacturing	Supply chain disruptions due to global events can hinder production and exports.
Agriculture	Global climate events and trade policies affect export demand and commodity prices.

Strategies for investors

Investors can use the following proven strategies to manage risks and safeguard their portfolios:

Strategy	Description
Diversification	Spread investments across different sectors, geographies, and asset classes to reduce risk.
Stay Informed	Keep track of global economic trends, geopolitical developments, and financial news regularly.
Long-Term Perspective	Focus on long-term financial goals to endure short-term market fluctuations.
Hedging	Use derivatives or gold to protect against currency depreciation and price swings.

The role of Central Bank

Major global central banks like the U.S. Federal Reserve, European Central Bank (ECB), and Bank of Japan influence market volatility in India through their monetary policy decisions. Foreign investors often move capital to developed markets for safer, higher returns when these institutions raise interest rates to combat inflation. This results in capital outflows from emerging markets like India, leading to the depreciation of the rupee and a fall in equity markets.

Central Bank Action	Effect on the Indian Market
Interest Rate Hikes	FII outflows, rupee depreciation, equity market dip
Liquidity Injection (QE)	Boosts global risk appetite, increases capital inflows
Tightening Monetary Policy	Higher borrowing costs, lower corporate margins
Dovish Outlook	Promotes risk-taking, supports stock market recovery

Wrapping up

Global events undeniably play a significant role in driving volatility in Indian markets. By understanding how these events influence the market, investors can make informed decisions, manage risks effectively, and capitalise on potential opportunities. Staying vigilant and adaptable is key to navigating the ever-evolving landscape of global market dynamics.

Factors like geopolitical tensions, economic policies, interest rate changes, and international trade developments can significantly impact market behaviour. These factors make it crucial for investors to stay updated and continuously reassess their strategies.