The markets fell 6% last week. The fall hurt because it was sharp. We’ve been at the losing end since the beginning of this financial year, barring a few relief rallies in the interim (the jiggles!).The relief rallies can make one feel like there’s a trend reversal, but if you zoom out, we’re just a part of a larger downward trend.
April 2022: -2% plus May 2022: -3% plus June 2022: -8% = That’s a total of -13% so far.
So what’s up?
Inflation in the US got no chill: Inflation climbed to 8.6% in May, a huge disappointment to all those thinking it had peaked out. Also, adding pressure on the Fed to act more aggressively.
The Fed slammed emergency brakes: And then came a 75bp rate hike - the sharpest in decades. The Fed now projects that it would hike rates by another 75bp by the end of the year.
And of course, hiking rates this hard, and this fast hurts. The economy would slow down massively, especially since easy monetary policy has been quite the fuel so far.
And then comes India!
The RBI raised rates: The RBI raised rates by 50bp, citing concerns about geopolitical tensions, which are driving inflation.
The US sneezed: Rates increase in the US, money flows out from emerging markets. The US economy slows down, the world economy gets affected.
But as we’ve been saying, the situation in India is different.
There are pressures in the near-term, stemming out of high inflation, and that will last till the time global supply chains don't normalise.
But there are some very encouraging signs for India - the underlying economic recovery is strong and the fiscal policy is expansionary.
So while inflation hurts sentiment, impacts profits and slows things down, the markets would feel continue feeling some pain.