How Gross Domestic Product (GDP) affects the Indian Share Market
The Gross Domestic Product (GDP) indicates the total value of all the goods and services produced in a country within a specific time period (quarterly or yearly). It is one of the major indicators used to analyse the condition of a country’s economy.
A stronger than expected GDP growth should be taken positive for the respective country’s economy, while a lower than expected is negative or bearish.
GDP and Stock Market Relationship
Indicators That Impact India Stock Market
Gross Domestic Product (GDP) of India is higher than the expected or previous, is positive or bullish for India stock market and currency and it will gain against other currencies like USD, EUR, and GBP etc or vice versa. The effect of GDP data is only for the short term.
Effect of GDP data of Major Countries on Indian Equity, Commodity, and Forex Market:
1) United States of America GDP Data:
USA: GDP data better than forecast:
Indian Equity Market = Bullish
If the Gross Domestic Product data of US is better than forecast then it is bullish for the US Stock market, Indian stock market also takes it as a positive.
GDP vs Stock Market Chart (Nifty)
Figure 1: Impact of US Gross Domestic Product data on Indian Equity market (Nifty)
On 28th March US GDP (QoQ) (Q4) data was positive and the next working day of Indian stock market was on 2nd May so on this day Nifty was in a positive mood.
Similarly, On 27th April 2018 US GDP (QoQ) (Q1) data was positive and the next working day of Indian stock market was on 30th April so on this day Nifty was also in a positive mood. US GDP shows the only slight impact on the Indian equity market. The local factor matters the most.
Indian Commodity Market = Bearish
The Gross Domestic Product data of USA is better than forecast, bullish for the US dollar and as a result, the US dollar index shows the uptrend.
As we already know the US dollar Index and Commodity market are inversely related so, it is bearish for COMEX as well as Indian Commodity Market, especially for gold and silver.
GDP vs Commodity Market Chart
Figure 2: Impact of US Gross Domestic Product data on Gold in the COMEX market.
On 28th March US GDP (QoQ) (Q4) data was positive and the gold formed a massive negative candle in the COMEX market. Similarly Gold, Silver and most of the base metals in the Indian market also follows a similar pattern. US GDP data shows only short-term (Few days) impacts on COMEX as well as Indian Commodity Market.
Indian Forex Market = Bearish
US GDP better than forecast is bullish for the US dollar as the dollar gets stronger against the Indian Currency (INR). USD/INR shows the uptrend.
USA: GDP data lower than forecast:
Indian Equity Market = Bearish
The Gross Domestic Product of the US lower than forecast is bearish for the US Stock market, Indian stock market also takes it as a negative.
Indian Commodity Market = Bullish
If the GDP data of USA is lower than forecast then it is bearish for the US dollar and as a result, the US dollar index shows the downtrend
As we already know the US dollar Index and Commodity market are inversely related so, it is bullish for COMEX as well as Indian Commodity Market, especially for gold and silver.
Indian Forex Market = Bullish
The Gross Domestic Product of the US lower than forecast is bearish for the US dollar as the dollar gets weaker against Indian Currency (INR).
USD/INR shows the downtrend.
2) China GDP Data:
China GDP Data shows a very little impact on Indian equity or Forex market. The data shows a major Impact on Commodity Market as China is the top consumer of commodities.
China: GDP data better than forecast:
Indian Equity Market = No impact or slightly Bullish
Indian Forex Market = No impact or slightly Bearish
Indian Commodity Market = Bullish
China GDP data better than forecast indicates strong physical demand for commodities from China and this lead to the rise in the price of Commodities (especially Base metals)
China: GDP data lower than forecast
Indian Commodity Market = Bearish
Gross Domestic Product of China lower than forecast indicates weak physical demand for commodities from China and this lead to the decline in the price of Commodities (especially Base metals)
China GDP data shows only short-term (Few days) impacts on COMEX as well as Indian Commodity Market.
3) European Union GDP Data:
The European Union GDP Data shows a major impact on the Indian Equity Market. There are more than 25 companies in the BSE 500 index which get 20 % (approx) revenue from the European market.
The European Union GDP Data shows very little impact on the Indian Commodity market.
EU: GDP data better than forecast
Indian Equity Market = Bullish
EU GDP data better than forecast is bullish for EU Stock market (DAX), Indian stock market also follows the same trend.
Indian Commodity Market = No Impact or slightly Bearish
Indian Forex Market = Bearish
The Gross Domestic Product of the EU better than forecast is bullish for Euro as it gets stronger against Indian Currency (INR).
EUR/INR shows the uptrend.
EU: GDP data lower than forecast
Indian Equity Market = Bearish
EU GDP data lower than forecast is bearish for EU Stock market (DAX), Indian stock market also follows the same trend.
Indian Commodity Market = No Impact or slightly Bullish
Indian Forex Market = Bullish
The Gross Domestic Product of EU lower than forecast is bearish for Euro as it gets weaker against Indian Currency (INR).
EUR/INR shows the downtrend.
Top 10 Country by Gross Domestic Product:
1. The United States, 2.China, 3.Japan, 4.Germany, 5. India, 6.The United Kingdom, 7.France, 8.Brazil, 9. Italy and 10.Canada.
I have a lot of other things that also need to be considered and those are something that I will cover in my next post.
I believe this strategy will surely help you to make money from online trading.
If you want to add some other parameters that make this theory more profitable, then please comments below. Your views and suggestion are always welcome.