A day in red

19 May 2022 , 04:19 PM

Indian stock markets ended the day deeply in red. NSE Nifty was down by 430 points. BSE Sensex came down by 1416 points in the day.  The news on India’s WPI inflation touching a high of more than 15% in April , that came yesterday, finally seems to have its adverse impact today.
The hawkish posture on inflation announced by US Federal Reserve Chairman, Jerome Powell yesterday also had its impact today on the Indian markets. Increase in interest rate in US is not a favorable factor for Indian markets. It can cause an outflow of foreign investment from the markets or reduce inflows from foreign investors. Foreign portfolio investment in Indian equity markets will come down if cost of borrowing increases in US due to increase in interest rate by US Federal Reserve.
The news on minutes of meeting of RBI’s monetary policy committee also seems to have dampened market sentiments. News came yesterday that the minutes of RBI’s meeting show some panic among monetary policy committee members regarding inflation. This can imply that RBI too may become more aggressive in raising interest rates. When interest rates go up, value of equity tends to go down as investors demand a higher rate of return for their equity investments. Increase in interest rate may also slow down the economy by making interest sensitive consumption and investment more expensive.