Pure pride has been flooding the media as Indian markets fall much lesser (close to 1%) when compared to the US market (5%) last week.
The trend, in general, was the apparent indifference of Indian markets to the fall of the Goliath of the West due to sustained FII and DII buying seen in the past 2 months, and the manufacturing sector propelling the nation.
Yet, this may have come to an end as Indian markets saw a dip of almost 3% towards the end of the week. Misplaced pride after all?
What caused the markets to shiver?
US inflation data didn’t provide good news. Inflation dropped from 8.5% to 8.3%, yet it was above estimates of 8.1%
With inflation not taming as much as expected, the FOMC meeting scheduled for the coming week has indications of being a fierce one, with a rate hike as large as 100 bps being rumoured
This hike may cause some hindrances in the FII money flowing into India. With stronger rate hikes, the US will look more attractive than before - higher returns in a developed economy
The Fed’s efforts to tame inflation are also likely to cool the economy down. A lot of the companies that depend on the US market get directly affected. Example - the IT sector! Nearly half the sector’s revenue comes from the US.
Fitch downgraded India’s GDP growth from 7.8% to 7% in 2022-23, owing to the increased inflation in India, which inched up from 6.7% in July to 7% in August 2022
India might see a 50 bps hike again by the end of this month, bringing the repo rate to 5.9%. Inflation is still a tad bit above RBI’s comfort level of 6%.
Our Take💡
The Indian market is much better compared to global peers, no doubt about that. However, it isn’t bulletproof. Whilst markets soaring will look encouraging, global factors are likely to keep corrections frequent. Against this backdrop, buying dips seems like a prudent strategy relative to blindly riding the pride bandwagon.