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Why Indian Stock Market Is On Bull Run – Free PDF Download

What’s happening?

  • Traders are betting India’s record-breaking stock rally still has legs, fueled by expectations of continued dovish monetary policy even as inflation fears deepen.
  • The nation’s NSE Nifty 50 Index has more than doubled from a March 2020 low — one of the best performers in the world over the period and testing new peaks almost every month.
  • It is also among Asia’s top gainers this month, beating the regional benchmark by about 4 percentage points.

Why bull run?

  • Breaking with other emerging-market central banks that have either hiked or indicated higher rates,
  • The Reserve Bank of India has held a dovish stance as its governor believes price gains are transitory.
  • Overseas investors are taking notice, with net inflows amounting to about $7 billion so far this year, the highest among emerging markets in Asia.
  • “The RBI has kept its stimulus policy easy and is likely to keep it like that for the months to come, and that will continue to support the stock market,“
  • Said Tom Masi and Nuno Fernandes, New York-based portfolio managers at GW&K Investment Management.

Diversion of investment

  • Consumer prices rose more than 6% in both May and June, driven by higher food and energy costs.
  • That has dented returns from traditional sources such as bank deposits and sent individual investors to stock trading for juicier gains.
  • Market players expect retail participation to rise further after 14 million new first-time electronic accounts were opened in the fiscal year through March 2021.

Concerns

  • While low-interest rates and ample liquidity are the major factors for increased interest in equities, any reversal in easy policywould impact the market,
  • Said Ajay Tyagi, chairman of the Securities and Exchange Board of India, the market’s regulator on Thursday.
  • The RBI has kept interest rates at a record low since May last year and injected unprecedented liquidity into the banking system.
  • Indeed some equity markets have taken a hit after a hawkish turn by their central banks.
  • In South Korea, where the Bank of Korea signalled policy normalization this month, stocks declined by more than 1% in July.
  • Equities have also retreated in Russia and Brazil where the central banks have already started raising rates.

Growth Vs inflation

  • Rising inflation may force the RBI to tighten policies although many believe chances are low for such a movein the near future.
  • Growth is still considered a priority by the central bank even as new local Covid-19 cases slow.

conclusion

  • Investors are optimistic the RBI will continue to keep its policy accommodative, a move that will support stocks.

Which of policy of RBI represents a contractionary monetary policy?

  1. Reduction in interest rates
  2. Reduction in CRR & SLR
  3. Purchase of foreign currency
  4. Sale of government Bonds

 

 

 

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