Liquidity has tightened, foreign capital has fled and inflation has soared

2022-06-07 0 By

Xinhua finance mumbai, January 24 (reporter zhang yadong) Indian stock market fell sharply on the 24th, Sensex30 index and Nifty50 index fell more than 2.6%.In terms of factors both inside and outside India, this is an inevitable decline.Liquidity tightening by the Reserve Bank of India (RBI), foreign capital outflows due to expectations of fed rate hikes, and domestic macroeconomic weakness are the three main factors behind the Indian stock market rout.With these factors not going away any time soon, the industry expects further declines in the Indian stock market.On The 24th, The Indian stock market plunged.The Sensex30 index closed at 57,491.51 points, down 1545.67 points or 2.62% from the previous close of 59,037.18.The Nifty50 index closed 468.05 points or 2.66% lower at 17,149.10 from the previous close of 17,617.15.Steel and financials were among the worst-hit sectors, with Tata Steel down more than 6% and Bajaj Finance down 5.99%.In fact, the downward trend in Indian stocks has been in place since last week.Out of five trading days last week, Indian stocks rose 0.14 per cent on only 17 days.Since the 18th, the Indian stock market has closed down for four consecutive trading days. On the 18th, the Sensex30 index fell 0.90% and the Nifty50 index fell 1.07%.On the 19th, the Sensex30 lost 1.08% and the Nifty50 lost 0.96%.On The 20th, the Sensex30 was down 1.06%;The Nifty50 was down 1.01%;The Sensex30 index fell 0.72 percent and the Nifty50 0.79 percent on Friday.On a weekly basis, the Sensex30 index fell more than 2,185 points, or more than 3.5%, last week.The Nifty50 fell more than 608 points, or more than 3.3%.For many reasons, both inside and outside India, this is a crash to come.First, the RBI’s liquidity squeeze will further depress the Indian stock market.Markedly different from 2021, the rBI’s more certain policy for 2022 is a gradual return of monetary policy, including a liquidity squeeze and an increase in the repo rate.While the RESERVE Bank of India may not immediately raise interest rates next month as inflationary pressures remain within its target range and a third wave of COVID-19 disrupts growth, the liquidity squeeze has already been in place since late 2021.Earlier, the Reserve Bank of India (RBI) said it would implement a Variable rate Reverse repurchase (VRRR) operation of Rs 750 crore on Thursday.Starting from the second half of 2021, the VRRR has become one of the central bank’s main tools to tighten liquidity.The rBI’s liquidity tightening has clearly triggered a sustained rise in Indian 10-year government bond yields.India’s 10-year government bond yield reached 6.655% for the first time yesterday, up 53 basis points from the previous session.A month ago, the 10-year yield was 6.462 per cent.Rbi governor Das pointed out in 2021 that the rBI’s liquidity support policies to support economic growth did not fall entirely on the real economy, which also contributed to the sharp rise in the stock market.Now that the RBI is pumping the water, it is only natural for the stock market to fall.Second, the fall occurred as expectations of an imminent rate hike by the Us Federal Reserve accelerated foreign capital outflows from Asian stock markets, including India’s.”This weakness in the Indian market was triggered by sharp selling by FPI (foreign portfolio investors) and FII (foreign institutional investors).Last week, the value of shares sold in FII India amounted to Rs 1,100 crore in the three trading days and On The 21st alone, Rs 31.5 crore was sold.”Ravi Singhal, vice chairman of GCL Securities, was quoted by Indian media as saying.Finally, the sharp rise in international commodity prices has raised inflation expectations in India.As steel, plastic and other prices continue to rise, India’s domestic automobile manufacturers, motorcycle manufacturers have to repeatedly raise sales prices to hedge the rising input costs.India is now experiencing domestic price increases not only at the production level but also at the consumer goods level.This inflationary development in India will have serious implications for India’s economic recovery.Consumer demand, already very weak, will be further hit by higher prices.In December 2021, unilever’s sales were up just 2 percent, and in November, they were up 4 percent, according to unilever India.The Reserve Bank of India has repeatedly said that while it will continue to aid growth, it will keep an eye on inflation.Now investors are starting to worry about how much room the RBI has to support growth in the face of rapid inflation.This casts a shadow over India’s future macroeconomic outlook.With these three factors not going away any time soon, the industry expects further falls on this basis.Statement: Xinhua Finance is a national financial information platform contracted by Xinhua News Agency.Under no circumstances does the information published on this platform constitute investment advice.