The Indian equity markets ended in the red on September 14, snapping a four-day winning streak. This happened after US inflation rate rose to 8.3% in August 2022 thereby pushing chances for the next rate hike by the US Federal Reserve. Analysts now expect another 75 basis points (bps) federal funds rate hike at the next monetary policy scheduled later this month.
Why do central banks hike interest rates? Here's a simple explainer to help you understand.
Following the crash on Wall Street, Asian markets plummeted on Wednesday. The Nifty 50 opened with a gap down of 293 points from the previous trading session at 17,777.15, but the index quickly rebounded and by 12:00 pm it reclaimed the 18,000 mark and hit an intraday high of 18,091.55 points. The Nifty50 then finished the day down 66 points, or 0.37 percent, at 18,003.75. Similarly, the Sensex fell 224.25 points, or 0.37% lower, to 60,346.97.
The rally in Indian markets on Wednesday amply proven that it is far ahead of its global counterparts. Despite the fact that US indices suffered their largest one-day percentage loss since June 2020, Indian indices traded higher.
Nifty's closing price on Wednesday puts it just 2.25% away from its record high, which was set in October 2021 at 18,418.75. The Sensex is also just 2.21% away from its record high of 61,716.05.
So far this year, the Nifty has crossed the 18,000 mark four times: once in January, once in April, and twice in the last two trading sessions. Since reaching the 18,000 level, the nifty has fallen by an average of 6%. For instance, after being hit in January, the Nifty fell 6.3 percent, and again it dropped 6.06 percent in April.
However, it appears that nifty can maintain the 18,000 level this time and may even be able to set a new high in the near term, supported by factors like strong FPI inflows, low crude prices, strong financials, high participation from retail investors, and solid macros.
The banking sector provided a strong push for the Nifty, and the rally in banking stocks began after credit demand from all sides, from personal loans to industrial loans, increased in June.
On August 25, 2022, the RBI releases its quarterly statistics on deposits and credit of SCBs for June 2022. The data shows that the loans extended by the scheduled commercial banks jumped to 14.2 percent in the June 2022 quarter, compared with 6 percent in the year-ago quarter and 10.8 percent a quarter ago.
The share of current account and savings account (CASA) deposits in total deposits has been increasing over the last three years (42.0 percent, 43.8 percent, and 44.5 percent in June 2020, 2021, and 2022, respectively), the RBI report showed.
Meanwhile, Morgan Stanley has raised estimates for all Indian banks' stocks, citing factors like a strong balance sheet and an improving trend in capacity utilization rates. It now expects bank loan growth to increase to 16% next year and 17% in FY25.
FPIs also made a strong comeback, which contributed to the rally in Indian equities. After nine months of massive net outflows, which began in October of last year. FPIs began buying in July and continued to do so in August. They invested slightly more than ₹51,200 crore in Indian equity markets in August, the highest inflow in 20 months, according to PTI.
Stabilizing crude oil prices also boosted markets. Crude oil prices have been falling for the past three consecutive months after touching multi-year highs in March and currently are at near a seven-month low and traders expect prices may even fall if Iran's nuclear deal is revived.
On the other hand, the AUM of retail investors topped ₹20 trillion for the first time in August, and they now account for more than half of the MF industry assets, Business Standard reported.
Besides this, the Chinese economy's slowdown as a result of its zero-covid policy has forced the closure of many manufacturing plants. As the lockdowns continued, Apple announced plans to manufacture the iPhone 14 in India, providing a significant boost to the country's manufacturing sector.
Further, India has overtaken the UK to become the world's fifth-largest economy and is now behind only the US, China, Japan, and Germany, according to IMF projections. A decade back, India was ranked 11th among the large economies, while the UK was in fifth place.
With record-beating expansion in the April-June quarter, the Indian economy has now overtaken the UK, which has slipped to the sixth spot, as per Bloomberg calculations.
Going forward, Wall Street brokerage Bank of America expects the Nifty to touch a new record high of 19,500 by the end of December this year. It says Nifty is well poised to benefit from FII fund flows, coupled with continuing domestic flows and buoyant tax collections.
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