After being in the green for four straight days, Indian indices Sensex and Nifty fell when US inflation data disappointed global stock markets. With the fear of impending interest rate hikes by the US federal reserves to control inflation, Sensex was mauled by bears, down 1,100 points on Friday. So are there green shoots on the horizon for investors or will the headwinds continue to shake up indices?
What’s in store?
The US Federal Reserve’s interest rates impact the market since a hike means higher cost of borrowing for companies. This hampers expansion plans for growth stocks and increases stress on stocks that aren’t profitable. Hence the inevitable interest rate hike by US Fed and subsequently RBI may have adverse effects on Sensex and Nifty.
Another impact of changing global sentiment is that foreign institutional investors have started selling their stocks in Indian markets. On September 16, they pulled out Rs 3,260 crore according to NSE, which was a significant jump compared to Rs 1,270 crore and Rs 1,397 crore on September 15 and 14 respectively. Although FIIs have pumped Rs 12,000 crore into Indian markets so far in September, a large sell off can cause stress for the indices.
Inevitable rate hikes and long term impact
Meanwhile, former RBI governor C Rangarajan has recommended aggressive rate hikes to buckle inflation, and expressed hope that rupee will strengthen when capital starts flowing in again.
Earlier this week, the World Bank had also highlighted the likelihood of a global recession hitting sometime in 2023, due to continuously rising interest rates to address inflation.