Impact of inflation and falling confidence in the stock market
Current scenario of inflation in the Indian economy
In recent months, the inflation rate in India has once again caught everyone’s attention. The retail inflation rate based on the Consumer Price Index (CPI) reached 6.21% in October, which is above the tolerance limit of the Reserve Bank of India (RBI).
Reasons for the increase in the inflation rate
Many external and internal factors are responsible for this increase in inflation in India. Rising crude oil prices internationally and supply constraints are one of the major reasons.
Hopes of interest rate cut dashed
Due to this increase in inflation rate, the hopes of cutting interest rates in India soon have now faded. Earlier it was estimated that RBI could give some relief by December, but in the current situation it seems difficult to do so.
Chances of interest rate cut low
Although investors were excited that the reduction in interest rates by the US Federal Reserve would also benefit the Indian market, but now giving priority to the domestic situation, RBI has adopted a stance to keep the situation stable.
Decline in stock market continues
The direct impact of rising inflation can be seen on the Indian stock market. In the first week of November, the Sensex and Nifty 50 remained in losses for the fifth consecutive day.
Reasons for investors’ concern
The biggest concern of investors at this time is the increase in inflation and the uncertainty of interest rate cut. Apart from this, the strength of the US dollar and the relatively low growth in corporate earnings are also affecting their decisions.
Impact of withdrawal of foreign investors
Due to rising valuations and weak corporate earnings, foreign investors have withdrawn their money, putting additional pressure on the Indian market.
Economic prospects for next year
In the financial year 2025, the focus of investors will mainly be on the improvement in corporate earnings.
Earnings likely to improve in the third quarter
Economists believe that if a positive trend is seen in high-frequency indicators in the next few months, it could bring relief to the market.
Conclusion
Rising inflation, exodus of foreign investors, and uncertainty of interest rate cuts have brought a tough time for the Indian stock market.
FAQs
- What is the main reason for the increase in inflation rate?
- Rising oil prices internationally and supply constraints are the main reasons for this.
- What is the impact of rising inflation on the stock market?
- The market is going through a downturn and investor confidence has weakened.
- When can RBI cut interest rates?
- RBI can cut only after the inflation rate stabilizes, which is expected early next year.
- What impact has the US Federal Reserve’s decisions had on the Indian market?
- The reduction in interest rates by the Federal Reserve has given some relief to the Indian market, but domestic inflation has complicated the situation.
- What is the contribution of foreign investors in the stock market?
- The investment of foreign investors is very important for the market, and their exodus increases the pressure on the market.