Inflation Keeps The Markets Down
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Market Moves, Market Watch
Indian benchmark indicators Sensex and Nifty 50 plunged 2.90 and 2.76 per cent, respectively, as fear of recession in the US economy, surging inflation, rising corona virus cases and geopolitical tensions were delaying any recovery in the markets.
India’s headline retail inflation rate dropped to 7.04 per cent in May after touching a nearly eight-year high of 7.79 per cent in April.
Indian benchmark indicators Sensex and Nifty 50 plunged 2.90 and 2.76 per cent, respectively, as fear of recession in the US economy, surging inflation, rising corona virus cases and geopolitical tensions were delaying any recovery in the markets. Recently, World Bank’s President David Malpass said most countries are headed for a recession and warned about possible return to 1970s stagflation. In simple words, inflation plus stagnant growth equals to stagflation. In the broader markets, the BSE Mid-Cap slipped 2.35 per cent whereas BSE Small-Cap too fell 1.28 per cent.
India’s headline retail inflation rate dropped to 7.04 per cent in May after touching a nearly eight-year high of 7.79 per cent in April. A drop in fuel prices after reduction in excise duty significantly contributed to bringing down the prices. On the sectoral front, BSE Power was the top loser of the fortnight with a loss over 5.85 per cent. On the other hand, investment in renewable energy touched a record of USD 14.5 billion in FY 2021-22, delivering a strong rise of 125 per cent compared to FY 2020-21, as per the report published by the Institute for Energy Economics and Financial Analysis (IEEFA).
The Indian government is taking all efforts to promote green energy as it aims to speed up the shift away from fossil fuels. BSE Bankex was the highly affected sector after BSE Power. Banking stocks have traditionally been seen as a proxy for the economy. If the economy does well, so do banking stocks. On the flip side, banking stocks are the first to take a beating when the economy slips into a downtrend. Banking stocks were underperforming for a variety of reasons, one of which was the recent developments announced by the Reserve Bank of India (RBI).
The RBI hiked the key repo rate by 50 basis points to 4.90 per cent in order to combat the surging inflation. It was the second raise in a row this year. RBI Governor Shaktikanta Das said, “With inflationary pressures becoming broad-based, it was likely that CPI inflation would remain above the RBI’s 2-6 per cent band for the first three quarters of the current financial year.” RBI revised inflation projection for FY23 to 6.7 per cent from 5.7 per cent and the GDP forecast was retained at 7.2 per cent. The World Bank has revised India’s GDP growth forecast for the second time.
Earlier, it had trimmed the forecast from 8.7 per cent to 8 per cent and now it has projected it at 7.5 per cent. BSE Oil and Gas was the only sectoral index that managed to close in the green territory with a gain of 1.11 per cent.
Global crude oil prices have risen substantially in the past 15-20 days despite forecasts of a sharp global economic deceleration. The rupee slipped to an all-time low beyond 78 against the US dollar as US inflation data warned about aggressive tightening by the Federal Reserve. Trading data shows that FIIs were net sellers over the fortnight to the tune of ₹19,316.44 crore while DIIs were net buyers to the tune of ₹16,456.33 crore.
