Market under pressure due to FII selling, recorded biggest decline in 27 months
The domestic stock market has been facing huge volatility for quite some time now. The 30-share BSE Sensex has reached nearly 9000 points below its all-time high. Both Sensex and Nifty have seen a fall of around 5 per cent only in June. This is the biggest drop in any one month after March 2020.
The process of selling of foreign institutional investors is not taking the name of break. Apart from this, the signs of Russia-Ukraine war, crude oil prices, inflation and recession are keeping pressure on global markets including domestic markets. Meanwhile, the rupee has also reached its all-time low of 79, falling against the dollar.
Rising inflation and policy rates
Rising inflation around the world has forced central banks to raise interest rates. RBI has increased it by 90 basis points by changing the bar repo rate in May-June. RBI’s repo rate has reached 4.90 percent. RBI has also said that the rates can be increased further. Experts believe that the repo rate can be 5.5-6 percent or more in this financial year. America is also struggling with the highest inflation in 40 years. The US central bank recently increased the interest rate by 75 basis points. It is possible that soon it will see an increase of 75 basis points.
FII selling pressure on the market
Foreign institutional investors have pulled out $28.37 billion from the domestic market so far this year. Selling of FIIs is also one of the main reasons for the domestic market coming under pressure. However, some experts expect this trend to change in the second half of FY23 and FIIs will be seen buying.
How will the road ahead
Brokerage firm BoB Cap says that the increase in rates by RBI will increase capital inflows and inflation will be seen to come down in the next few months. At the same time, Vikram Kasat of Prabhudas Lilladher says that the economic policy of developing countries is prepared according to the Federal Reserve. He says that although history does not repeat itself soon, but if the dollar continues to strengthen like 40 years ago, then the journey for emerging economies will be difficult.
