Before we venture out to answer the nitty gritties related to US fiscal cliff affecting Indian stock market; we need to know the correct meaning of fiscal cliff.
Fiscal cliff in real terms means the unprecedented fiscal deficit being created in US economy and in simple terms one can say that govt is getting less in terms of taxes from people and is spending more than its means. In Hindi language we can say that USA is spending more than its means.
If the fiscal deficit is not controlled in US, than wef 31 Dec 2012 midnight, the tax slabs will be reinstated to its original rates. The same is courtesy rising US debt Crisis which has become like a huge monster which can gobble all world economies.
Another major development which is likely to take place wef 01 Jan 2012 is the auto kicking of spending cuts and taxes as shown in the below screenshot.
Impact of Fiscal Cliff on Indian Stock Market
Indian stock indices are closely following the US fiscal cliff and will remain in bear grip unless Obama administration comes with some magical potion to revive the US economy. However all is not lost as their is always a silver lining in any difficulty and here lies an opportunity for India. This fiscal cliff may have an impact on US economy and may in turn lead to flight of capital to India which is good for us.