Stock market & Finance

A cliché goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. Weakening of the American economy is bad news, not just for India, but for the rest of the world too. Here we would discuss what is recession, what causes it and how much of an impact does it have on India. Technically, Recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. To understand what causes recession we need to know that economy follows a natural cycle wherein growth cannot be sustained forever and a slow down is an expected phenomena. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. It might interest you to know that this is not the first time that recession has hit the markets hard. US has had 10 recessions since world war 2. Gives us a hope, doesn’t it?.

Impact of a US recession on India

A slowdown in the US economy is bad news for India. Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to India. So all in all, though these are trying times financially, there is no reason to lose hope.