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US Government Shutdown and Impact on The Indian Stock Market
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US Government Shutdown and Impact on The Indian Stock Market
The US government shutdown is always an important factor to watch out for when international markets are concerned. With any news on a possible government shutdown appearing, investors across the globe, including India, become concerned.
What Does a US Government Shutdown Mean?
A US government shutdown occurs when there is no budget approval or when there are no financing bills passed by Congress. Without this approval, government agencies cannot pay for their operations. Some services are suspended, including the issuing of passports, the pay of government employees, research services, and even state and national parks.
With the federal government shutdown, economic uncertainty rises, which impacts investor mood globally. Let's explore the US shutdown news that's taking the internet by storm.
Past History of US Shutdowns
The US government shutdown is not a new phenomenon. There are historical instances in the US when there have been government shutdowns. These federal government shutdowns have occurred in the past, some lasting just a day while others went on for several weeks.
Here’s a quick look at the major ones:
|
Year |
President |
Duration (Days) |
Reason |
Nifty Movement |
|
1995–96 |
Bill Clinton |
21 |
Dispute over budget and Medicare funding |
-1% (Flat/Minor fall) |
|
2013 |
Barack Obama |
16 |
Disagreement on Affordable Care Act funding |
+3.8% (Nifty recovered despite global panic) |
|
2018–19 |
Donald Trump |
35 |
Border wall funding issue (longest shutdown) |
+1.1% (Nifty stayed stable; global impact limited) |
From this table, you can see that a US shutdown can last from a few days to more than a month, depending on political negotiations.
Impact of the US Shutdown on the Global & Indian Stock Market
Whenever the US government shutdown news emerges, global markets react immediately. Here’s how it usually impacts India:
1. Market Volatility – FII (Foreign Institutional Investors) often reduce exposure in emerging markets like India because of global risk. This creates selling pressure in Nifty and Sensex.
2. Currency Fluctuations – The Dollar becomes volatile during a government shutdown. The Indian Rupee sometimes weakens against the Dollar, affecting import-heavy sectors like oil & gas.
3. Increase in Safe-Haven Assets – During a US shutdown, investors purchase gold and US bonds. This can increase the price of gold in India and lead to declines in the equity markets.
4. Impact by Sector in India – IT and outsourcing companies (Infosys, TCS, Wipro) are particularly dependent on the US clientele. This means revenue projections may decline due to the slowdown in US government project spending.
Should Indian Investors Worry?
Evidence suggests the federal government shutdown leads to temporary chaos, but it leaves the Indian markets largely unscathed. Earlier, the Nifty declined during the US political standoffs in 2013 and 2018, but it eventually recovered.
Investors should remain calm and not engage in panic sell-offs, and should keep in touch with a financial expert. SIP investors, in particular, have volatile periods that pass with time and can be used as an opportunity for investment.
Conclusion
The US government shutdown is only a political event in America, but it is felt globally. There is a short-term currency and sector volatility focus for India that is negative, but India’s story is a positive one. There is growth.
Keep in mind that a US shutdown might affect the markets for a little while, but it doesn’t change the long-term bull run for India.
Disclaimer
This blog is for educational purposes only. It should not be considered as any financial or investment advice.
Author
Frequently Asked Questions
A shutdown in US Government might occur when Congress is unable to pass interim finance legislation or the annual budget, leaving the federal government without funds.
Many non-essential government departments and services shut down during this time.
A US Shutdown occurs when Congress does not reach an agreement with the President on the budget/appropriation bills in a timely manner.
A US Shutdown can last an unlimited amount of time. In the past, government shutdowns have lasted as short as one day and as long as 35 days.
A US Government shutdown leads to temporary minor fluctuations in the global and Indian stock markets. In the US, Foreign Institutional Investors (FIIs) tend to pull back their investments, and money often flows into gold.
In historical instances of US Government Shutdowns, Nifty has shown a tendency to make rapid recoveries. During the shutdown in 2013, for instance, Nifty increased almost 3.8%.
No, there is no reason for long-term Indian investors to be concerned about them. The best approach is to continue with SIPs and hold on to a strong portfolio. As always, the fundamentals of the remaining stocks should be sound.
