New Delhi [India], April 21 : While the Indian economy is relatively insulated from a slowdown in the United States, the stock markets of both countries show a strong correlation, according to a report by investment bank and financial services firm Goldman Sachs.
The report highlighted that India's economy is less exposed to a slowdown in the US when compared to other countries, mainly because of India's lower trade dependency.
It said, "While the Indian economy is relatively insulated from a US slowdown compared to other markets that have higher trade with US, there is a strong correlation between Indian equity markets with the US market".
India's merchandise exports make up for around 12 per cent of its GDP, whereas in China it is 19 per cent, and in Vietnam it is as high as 82 per cent. This helps shield the Indian economy from the full impact of any economic slowdown in the US.
The report noted that over the last 20 years, India's GDP growth has only been slightly affected by global factors, except during major global crises like the Global Financial Crisis (GFC) in 2008 and the COVID-19 pandemic in 2019-20.
But, despite the relative insulated economy, the Indian equity market remains closely linked with the US market. According to Goldman Sachs, the movement of the Indian stock market, particularly the Nifty 50 Index, has shown a strong correlation with the S&P 500 Composite Index in the US over the past decade.
From 2005 to 2015, the Nifty 50 and S&P 500 indices showed some differences in their movements. However, after 2015, their performance has become increasingly similar. Following the COVID-19-induced market crash in early 2020, both indices recovered strongly and reached new highs by late 2021. Although there have been minor dips along the way, the overall trend for both markets has been upward.
However, the report also pointed out that merchandise exports and container traffic at Indian ports have still been influenced by slowdowns in US growth. This is because the United States remains a key trading partner, accounting for 17.7 per cent of India's exports and 6.2 per cent of its imports.
The report mentioned that while India's economic growth may face short-term hurdles, cost structures and profitability need to be monitored closely. As a result, the firm has lowered valuation multiples for some companies under its coverage to reflect a more difficult operating environment.
It said "We cut multiples for some companies across our coverage to reflect a tougher operating environment".
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