Economic Survey: US market risks cannot be ignored despite retail resilience

Even as the Indian market demonstrates resilience, supported by growing retail participation, the risks associated with a potential US market correction cannot be overlooked, given historical trends, according to the Economic Survey 2024-25, presented in Parliament today by Union Finance Minister Nirmala Sitharaman.

While India’s financial sector has remained strong, international market conditions could still influence domestic markets. With the US comprising 75% of the MSCI World Index (as of November 2024), any correction in its market could have significant ripple effects on global markets, including India.

The survey, released ahead of the Union Budget, emphasised the need for caution regarding developments in both Indian and global stock markets.

Historical data and research suggest that the Indian equity market has been notably sensitive to movements in the US market. The Nifty 50 has historically shown a strong correlation with the S&P 500, with analysis of daily index returns between 2000 to 2024 revealing that in 22 instances when the S&P 500 corrected by more than 10%, the Nifty 50 posted a negative return in all but one case, averaging a 10.7% decline.On the other hand, during 51 instances when the Nifty 50 experienced a correction of over 10%, the S&P 500 exhibited positive returns in 13 instances, with an average return of -5.5%.

Further evidence shows any changes in the US market are a leading indicator for the Indian market, especially during shocks, while the reverse is not true. This emphasises that Indian markets tend to react more to trends originating in the US, reinforcing the need for caution in the event of a downturn in the latter’s stock market, as per the economic survery.

The unique investor base at the National Stock Exchange (NSE) surpassed the 10-crore mark in August 2024, tripling in the last four years, and currently stands at 10.9 crore as of December 26 , 2024. The number of client codes, indicating a number of investor accounts at NSE, has risen from a little under six crore at the end of 2019 to nearly 21 crore as of December 2024.