Active Stocks
Thu Mar 28 2024 13:39:23
  1. Tata Steel share price
  2. 155.45 1.70%
  1. HDFC Bank share price
  2. 1,454.45 0.95%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
  1. ITC share price
  2. 429.05 0.25%
  1. State Bank Of India share price
  2. 755.05 2.86%
Business News/ Markets / Stock Markets/  Markets remain shaky over investor caution on global interest rates, policy normalisation fears
BackBack

Markets remain shaky over investor caution on global interest rates, policy normalisation fears

Indian markets were volatile on Friday as investors turned cautious following a faster-than-expected increase in global interest rates, swinging 2% before ending the session with marginal gains

The Bombay Stock Exchange (BSE)Premium
The Bombay Stock Exchange (BSE)

Indian markets were volatile on Friday as investors turned cautious following a faster-than-expected increase in global interest rates, swinging 2% before ending the session with marginal gains.

The BSE Sensex was up 21.12 points or 0.04% at 52,344.45 while the Nifty edged 8.05 points or 0.05% lower at 15,683.35. “Weak global cues led Indian equities to see profit booking in the last couple of days. A depreciating rupee, higher oil prices and inflation could be near-term overhangs for the market. Nifty corrected around 0.8% for the week as the slight hawkish stance of the Federal Reserve in the latest FOMC (Federal Open Market Committee) meeting weighed on sentiments," said Binod Modi, head strategy, Reliance Securities.

Overall, markets were down nearly 1% this week, eroding investors’ wealth by 3.78 trillion. Analysts said with inflation in the US rising to 5%, global financial markets may become jittery, creating pressures on the Indian rupee. The US Federal Reserve’s hint of policy normalization is expected to hit foreign fund flows, which have been driving emerging markets like India.

According to UBS analysts, while some impact on India price-to-earnings (PE) multiples is inevitable whenever global liquidity and Fed action tightens, the bigger compression could coincide with the Indian government bond tightening which is likely to be gradual over the next 24 months. A full blown contraction in multiples might not occur until there is a hit to risk appetite from an external shock or panic event, it said.

UBS said that while global liquidity factors (and Fed action) matter, it is keeping an eye on factors closer to home, such as RBI’s move, Indian government bond movements, and household savings. “Our fixed income strategist believes that while there are growing inflation/policy normalization risks, rise in IGB yields should be quite orderly. The team expects 10-year IGB yields to rise gradually from current levels to 6.5% and 6.75% by end of FY22 and FY23, respectively, as RBI starts normalizing policy," it said.

With foreign institutional investors pumping in $8 billion into Indian equities so far in 2021, benchmark indices have been hitting record highs. Domestic institutional investors, including mutual funds, pension funds and banks, have been net sellers of Indian shares worth 12,752.87 crore this year so far, while offloading 2,784.5 crore in June alone.

“Domestic retail direct investment has picked up significant momentum over the last couple of years which can cushion the markets against any FII outflows," said Rupen Rajguru, head, equity investments and strategy at Julius Baer.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 18 Jun 2021, 08:37 PM IST
Next Story footLogo
Recommended For You
GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie