New Delhi, June 19
The US Fed’s aggressive interest rate hike last week and prospects of more increases has ended the bull run in Indian stock markets and made fixed instruments such as fixed deposits and debt papers more attractive.
Several banks, including SBI, HDFC, ICICI and Axis Bank, have already hiked the rates for fixed deposits to attract retail investors turning away from a falling stock market. As the RBI will be compelled to hike interest rates during its next monetary policy meeting in early August to maintain the differential rate with US Fed’s interest rates, fixed income products will become more attractive than equities.
The US Fed’s easy money policy, emulated by other Central banks, kept the Indian stock market afloat. Recently, retail investors have supported the stock market after foreign portfolio investors (FPI) began withdrawing from October 2021 due to rising bond yields in the western markets. But the support that the US Fed gave to equity investors around the world with its easy money policies is now over. The United States Fed may peak the rate to over 3%, which may accelerate FPI outflows. Last week was the worst for Indian equity indices in over two years.
Compared to other countries, India has fared much better at controlling inflation. It will also be the fastest growing major economy in terms of percentage growth. But for FPIs to return, the RBI needs to get inflation in check. While the staying power of retail investors in a falling stock market is being watched, debt investment and fixed options are emerging as the best bet.