Recent Events in Indian Stock Markets
The NSE Nifty 50 Index has risen 102 per cent from its March 2020 lows to a new high, aided by the central bank’s liquidity lifeline, millions of new retail individual investors, and the regulatory crackdown in China.
Since October-December 2020, the rally has added nearly one percentage point to GDP growth per quarter. In a note, Bloomberg Intelligence analysts Gaurav Patankar and Nitin Chanduka wrote, “The case for India’s equities remains structurally positive, we believe, amid revived consumer demand, regulatory overhaul, and the trajectory of monetary and fiscal policy.”
The economy’s vulnerability to a market downturn has grown due to the steep rise in gains. “The higher stocks climb, the greater the risks to the economy if they correct — an important consideration when the Federal Reserve is weighing the timing of tapering stimulus.”
The Indian Stock Market is rising as if everything is going well in the country and the economy. The Price to Earnings ratio (P/E Ratio) is around 23.63. From the perspective of investing, if the P/E Ratio is between 20-25. The market is considered to be expensive and hence one should book 80% of their profits and wait for better entry levels to come. A table has been attached below for your reference.
There are various factors in the economy that should be weighing down the markets as of now. A sharp rise in the number of Covid cases in India has been observed recently. Although the markets have seen a reasonable correction in the last few days from the recent highs of 17th January 2022.
The Factors weighing down Indian Stock Markets
- Inflation Concern: In December, retail inflation in India reached 5.59 per cent, a five-month high. For the sixth month in a row, the CPI has remained inside the RBI’s tolerance level. The Monetary Policy Committee tries to keep inflation in a range of 2-6 per cent, with a medium-term target of 4 per cent. For more than two years, retail inflation has remained above the RBI’s medium-term target. Investors are becoming more cautious as a result of the increase in inflation.
- Spiking US Bond Yields: The recent spike in US Bond yields gave a snowball effect in the fall we witnessed earlier this week. The thing is rising Bond Yields strike an opportunity for the smart investors to park their money into a safer and sound investment with a fixed return beating the Inflation. Global Markets also witnessed a significant correction during this time.
- FII’s Sell-off: Foreign Institutional Investors have sold assets worth ₹16,394.61 crores from 17th Jan to 24th Jan 2022. Such a Huge sell-off is the major reason behind the market fall. As the Foreign Investors maintain a cautious stance over Indian Equity. The Indian Institutional Investors were on a buying spree.
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