Sunday, February 5, 2023

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Indian stock market maintains growth on fourth consecutive day

New Delhi: Snapping four straight sessions of sharp losses, Indian stocks again gained some momentum in early trade on Tuesday, possibly due to value buying.

At 9.32 am, Sensex traded at 57,628.49 points, up 483.27 points or 0.85 per cent, whereas Nifty traded at17,171.30 points, up 155.00 points or 0.91 per cent.

Meanwhile, 45 of the Nifty 50 companies traded in the green this morning, National Stock Exchange data showed.

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Sensex and Nifty slumped

The Indian stock market’s key indices, Sensex and Nifty, slumped by nearly two per cent on Monday dragged by broad-based selling tracking weakness in the global equities, which took cues from aggressive monetary policy tightening by various central banks, including the US Federal Reserve.

The latest policy rates hike by the US central bank in its fight against high inflation has dampened investors’ sentiment.

The latest slump in Indian equities reversed the positive sentiments in the domestic market that continued for two months.

US Federal Reserve raises repo rate by 75 bp

Further tightening of monetary policy in the US essentially means that investors will have a tendency to move to the US markets for better and stable returns. The US Federal Reserve had raised the repo rate by 75 basis points — which is the third consecutive hike of the same magnitude, in line with expectations.

The Fed also hinted that more rate hikes were coming and that these rates would stay elevated until 2024.

The US central bank seeks to achieve maximum employment and inflation at the rate of 2 per cent over the long run and it anticipates that the ongoing hikes in the target range will be appropriate. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

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RBI Monetary Policy Committee meet

Going ahead, the RBI Monetary Policy Committee meet during September 28-30 will be thoroughly watched by stakeholders. Foreign reserves, which fell substantially and are at a two-year low from their peak, will also keep the markets on edge.

The reserves have dropped by almost USD 80 billion since the escalation of the Russia-Ukraine tensions into war earlier this year.

India’s forex reserves have been consistently depleting for the past few months because of RBI’s likely intervention in the market to defend the depreciating rupee and for the country’s trade settlement.

Here’s how RBI intervenes in the market

Typically, the RBI intervenes in the market through liquidity management, including through the selling of dollars, with a view to preventing a steep depreciation in the rupee. A depreciation in the rupee typically makes imported items costlier.

“FPIs turning big sellers in India (Rs 5101 cr in cash market yesterday) is an indication of the risk-off in equity in emerging markets. In the context of rising US bond yields, RBI will be forced to raise rates by around 50 bp on September 30th. This will be another negative for equity markets,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“In brief, except for falling crude there are no positive triggers for the equity market now. This is not the time to aggressively buy the dips. However, there is scope for selective buying in the broader market. There are stocks rising even in this weak market. These are signals of accumulation on strong fundamentals,” Vijayakumar added.

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Rupee at all time low

Coming to the depreciation of the rupee, it is currently hovering around its lifetime low. This consistent depreciation follows the ongoing strengthening of the US dollar index to a two-decade high, hoping that demand for safe-haven currency such as the dollar would pick up.

This morning, the rupee opened at 81.49 against the US dollar, against Monday’s close of 81.62.

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