Since the onset of the pandemic, the RBI and the government have turned into brothers-in-arms, and their concerted efforts have continued even to combat the unparalleled inflation that is now taking place. Although the RBI has generally been expected to raise interest rates and press the brakes, the government has also stepped in and changed import duties to bolster the fight against inflation.
This is not the first time such co-operation has taken place.
In 2013, when inflation was in double digits, the RBI raised repatriation rates and the government imposed import restrictions on gold and metals. A similar alliance also witnessed in 2018. After both cases, the stock market rose by ~ 50% and ~ 20%, respectively, next year.
So while history gives stock markets some hope, it should not be misunderstood that every time a strategy has been formulated, the results have been positive. In the global financial crisis, the countries that merged both fiscal and monetary policies fell into either a sovereign debt crisis or high inflation later on.
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For example, the European Union faced a debt crisis in 2011 and as a result, the London Stock Exchange entered a short bear market. Therefore, there is no single magic formula to deal with any financial crisis and success or failure depends on the dynamics of the situation.
At present, India’s main focus has been on curbing inflation, but at the same time not harming its growth and fiscal deficit sharply. As a result, our stock markets have been relatively resilient so far. However, in the wake of ever-changing international national interests and the growing risk of a global recession, it is difficult to judge whether a concerted effort will have a positive effect. In this uncertainty, there is a high probability that markets will continue to fluctuate and that concentration awaits us.
Nifty 50 ended the week on a negative note, mainly in line with international stock indices. Currently, Nifty seems to be heading towards the support area between 15,900-16,100 points. Even though this week’s trading patterns indicate that there is a risk of further declines, overall bearish momentum has diminished as Nifty is now trading above the falling resistance line.
Taking these factors into account, we recommend that traders maintain a slight negative to neutral outlook into next week. As long as Nifty does not fall below 15,900, there is still a good chance of going up to 16,800 points.
Expectations of the week
Next week will be a roller coaster ride where a number of important events are planned. To begin with, all eyes will be on the consumer price index and the inflation index, and markets will closely monitor whether restrictions on import duties and interest rate hikes have had a positive effect on the same.
Furthermore, data on India’s trade balance will be closely monitored as India’s current account deficit widened to a record high of $ 23.3 billion in May 2022.
Globally, the central bank’s interest rate decision can cause vibrations in international markets. Investors are therefore advised to be cautious and stay on the sidelines until a clear market trend emerges.
Nifty 50 closed the week at 16,201.80, down 2.31%.
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