Impact of Global Events on Indian Stock Market: A Beginner's Guide

by KarNivesh | 01 October, 2025

Impact of Global Events on the Indian Stock Market

The Indian stock market does not function in isolation; it is deeply interconnected with global developments. Events such as financial crises in the United States, wars in Europe, or policy shifts in China ripple across the world and influence investments on Dalal Street. For Indian investors, this interconnectedness is both an opportunity and a challenge. Understanding how global events affect Indian markets is crucial for making informed investment decisions.

Major global events and their percentage impact on Indian stock market (Sensex crashes)

How Global Events Transmit to Indian Markets

The integration of India’s markets with global financial systems has strengthened over the past few decades. This has attracted foreign capital and enhanced growth, but it has also made Indian markets more vulnerable to external shocks. There are three main transmission channels:

• Foreign Investment Flows (40% impact): Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) play a major role in India’s markets. As of late 2024, they held nearly 20.7% of BSE 500 companies. When uncertainty arises, these investors withdraw funds from India and move them to safer markets, causing immediate declines in stock prices.

• Currency Exchange Rates (25% impact): Global events affect the rupee’s value against the dollar. A weaker rupee makes imports costlier, leading to inflation and lower profits for companies dependent on imports.

• Commodity Prices (20% impact): India imports nearly 85% of its crude oil requirements, spending about ₹12–15 lakh crore annually. Any spike in global oil prices, such as during the Russia-Ukraine conflict, directly increases India’s import bill, inflation, and corporate costs.

Pie chart showing the primary ways global events transmit their impact to Indian stock markets

Foreign institutional investor (FII) flows in Indian markets showing impact of global events from 2020-2025

Major Global Events and Their Impact

The 2008 Global Financial Crisis

Triggered by the collapse of Lehman Brothers, the 2008 financial meltdown had a severe effect on Indian markets. The Sensex plunged from 21,206 points to 8,160, a decline of 61.5%. Investors lost nearly ₹45 lakh crore in market value. FIIs pulled out around ₹5 lakh crore, causing liquidity shortages. The rupee depreciated to ₹49 per dollar, imports became more expensive, and export growth fell by 13% as global demand collapsed.

COVID-19 Pandemic (2020)

The pandemic caused one of the sharpest crashes in history. On March 23, 2020, the Sensex fell 4,000 points in a single day, and the Nifty dropped 1,150 points, marking a 38% decline within just 23 days. FIIs withdrew ₹94,000 crore in March 2020 alone, the highest monthly outflow recorded at that time. However, strong monetary stimulus worldwide, including massive liquidity injections by the US Federal Reserve, led to a swift recovery in Indian markets.

Russia-Ukraine War (2022)

The war disrupted global energy and supply chains. Crude oil surged from about $75 per barrel to $120 per barrel (₹6,250 to ₹10,000 per barrel). This increased India’s annual import bill by ₹2–3 lakh crore. The Sensex declined 17.5%, with aviation, logistics, and chemical companies suffering the most. On the other hand, defense and commodity-related stocks gained during the period.

China’s Economic Stimulus (2024–25)

Recently, Chinese government stimulus measures caused foreign investors to reallocate funds. Between October 2024 and early 2025, FIIs pulled out ₹1.40 lakh crore from Indian markets, leading to a 10% decline in the Nifty 50 over seven weeks. During the same period, Chinese markets surged by 32% compared to India’s modest 5–6% growth, making China more attractive for global investors.

Sector-Wise Vulnerability

Not all industries are equally affected by global shocks.

• High Vulnerability: IT services (65% export-driven), textiles and garments (55% export-dependent), and automobiles (sensitive to supply chain disruptions like semiconductor shortages).

• Medium Vulnerability: Banking and finance (affected indirectly by currency and capital flows) and pharmaceuticals (resilient due to domestic demand but pressured in exports).

• Low Vulnerability: FMCG (90% domestic-focused) and real estate (primarily domestic, with minor indirect exposure).

The Role of Central Bank Policies

Global central bank decisions heavily influence Indian markets.

• US Federal Reserve: When the Fed raises rates, investors prefer US bonds over Indian equities, leading to annual outflows of ₹2–3 lakh crore. This causes rupee depreciation of 3–5% and lowers valuations of Indian companies. Conversely, Fed rate cuts lead to inflows of ₹1–2 lakh crore, strengthen the rupee, and boost stock valuations.

• European Central Bank: ECB policies affect euro trade flows, global risk sentiment, and cross-currency competitiveness.

• China’s Policy: With trade worth ₹7 lakh crore annually between India and China, Chinese policies strongly affect investment flows and commodity demand.

Recent Trends in Foreign Investment (2020–25)

• 2020: Outflows of ₹34,000 crore during COVID panic.

• 2021: Inflows of ₹1.75 lakh crore as investors sought higher returns.

• 2022: Outflows of ₹1.76 lakh crore due to Russia-Ukraine war and Fed tightening.

• 2023: Inflows of ₹1.68 lakh crore amid partial recovery.

• 2024–25: Outflows of ₹1.40 lakh crore as funds shifted to Chinese markets.

Currency and Market Impact

A 5% depreciation in the rupee adds ₹60,000–75,000 crore to India’s annual import bill. Export-oriented sectors like IT and textiles benefit from a weaker rupee, while companies with foreign currency debt—estimated at ₹8–10 lakh crore—face higher repayment burdens.

Government and RBI Response

India has developed strong policy tools to manage global shocks:

• RBI Actions: Currency interventions using reserves (₹58 lakh crore), liquidity management, and interest rate changes.

• Government Measures: Stimulus packages (₹20 lakh crore during COVID), tax relief, and infrastructure spending to revive growth.

Strategies for Investors

To navigate global volatility, investors should:

• Diversify portfolios across sectors with different exposure levels.

• Monitor global indicators like Fed meetings, geopolitical developments, and commodity prices.

• Stay long-term focused, since history shows markets recover strongly after crises.

Conclusion

The Indian stock market’s sensitivity to global events is undeniable. From the 2008 financial crisis to COVID-19, the Russia-Ukraine war, and China’s stimulus policies, external developments have repeatedly tested Indian markets. While such events cause short-term volatility, Indian markets have consistently shown resilience thanks to strong domestic consumption, proactive policy measures, and growing foreign reserves.

For investors, the key lies in awareness, diversification, and patience. Global uncertainties will continue, but India’s structural strengths make it a compelling long-term investment destination. With India projected to become a $5 trillion (₹415 lakh crore) economy by 2027–28, the link between global dynamics and domestic markets will only deepen. Navigating these challenges wisely can turn risks into opportunities for investors.