scorecardresearchIndia Decoupled? India, US correlation weakens as equity markets take divergent path: Report

India Decoupled? India, US correlation weakens as equity markets take divergent path: Report

Updated: 05 Sep 2022, 10:26 AM IST
TL;DR.
Equity markets in India and the US have taken a divergent path over the past fortnight. The BSE Sensex has fallen 2.5 percent, even as the Dow Jones declined close to 8 percent, a report by Business Standard stated.
Equity markets in India and the US have taken a divergent path over the past fortnight. The BSE Sensex has fallen 2.5 percent, even as the Dow Jones declined close to 8 percent, a report by Business Standard stated.

Equity markets in India and the US have taken a divergent path over the past fortnight. The BSE Sensex has fallen 2.5 percent, even as the Dow Jones declined close to 8 percent, a report by Business Standard stated.

Equity markets in India and the US have taken a divergent path over the past fortnight. The BSE Sensex has fallen 2.5 percent, even as the Dow Jones declined close to 8 percent, a report by Business Standard stated.

As per the report, in July, the correlation coefficient for both these markets had hit a 17-month high, signaling.

During the first half of the calendar year 2022, the Sensex had declined 9 percent, while the Dow had declined 13 percent, it further noted.

Indian markets have withstood the latest global sell-off much better, triggered by the hawkish comments of US Federal Reserve Chair Jerome Powell at the Jackson Hole symposium, said BS.

U.S. Federal Reserve Chair Jerome Powell acknowledged that a quick undo of the U.S. central bank's rate tightening was far from over. The Fed will likely impose more large interest rate hikes in coming months and is resolutely focused on taming the highest inflation in four decades, Powell said.

Powell acknowledged that the Fed's continued tightening of credit will cause pain for many households and businesses as its higher rates further slow the economy and potentially lead to job losses.

Since March, the Fed has implemented its fastest pace of rate increases in decades to combat inflation, which has punished households with soaring costs for food, gas, rent and other necessities. The central bank has lifted its benchmark rate by 2 full percentage points in just four meetings, to a range of 2.25 percent to 2.5 percent.

According to the report, one reason behind this, observed market players, is lower leveraged bets in India.

“In bearish times, when the buying interest is low, forced liquidation of leveraged positions creates havoc. The down-moves are exaggerated as we have seen in highly-leveraged markets like the US or even cryptocurrencies in the past 12 months," tweeted Nithin Kamath, founder and chief executive officer, Zerodha - India’s largest brokerage.

He added, "all regulatory changes in the past two years by the Securities and Exchange Board of India have reduced leverage. There hasn’t been an instance when our risk team had to square off positions of a large group of customers due to mark-to-market losses.”

Article
When the inflation is higher than the nominal rate, the real rate of interest is negative,. 
First Published: 05 Sep 2022, 10:26 AM IST