How Recession Impacts the Indian Stock Market
India is a developing country that undergoes phases of economic growth as well as slowdowns. While the economy is scaling new heights, there are times when it enters a slow phase too. The most recent example of this is the COVID19 pandemic. While the pandemic had a global effect, it caused serious economic repercussions for India too. Talking about the Indian stock market, the onset of the pandemic led to a considerable crash. Both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) fell by 38%. This constituted a fall of 27.31% from the beginning of 2020. Besides a crisis or a pandemic, the Indian stock market is affected by a lot of external factors, both domestic and international. One such factor is the economic recession that has an adverse effect on the Indian stock market. Let’s understand how but before that, let’s get familiarised with the basics.
What is recession? Recession is defined as a slowdown in the economic activities of a country. This slowdown might last for two or more quarters and cause a fall in a country’s Gross Domestic Product (GDP). Besides the GDP, other economic indicators, like corporate profits, employment opportunities, and more, also suffer a decline.
Industrial activities and trading are reduced in a bout of recession. This ultimately leads to a reduction in the overall GDP. Many investors confuse a recession with depression, which is a much more severe scenario. Let us understand how the two are different.
Recession v/s depression – the difference While both terms are used for a declining economy, a recession is different from a depression in many respects. As a famous line goes, ‘it’s a recession when your neighbour loses his job, but a depression is when you lose yours’. Recession and depression differ from one another on the basis of their severity and duration. A recession is less severe than a depression. It is indicated by a downtrend in trend in business cycles, unemployment, and a decrease in production and trading activities. This phase can last for several months. For households, recession leads to reduced purchases and investments. Read more about Impact of recession on the stock market