Since the start of the pandemic, reserve Bank of India And the government has turned into brothers with arms, and their united effort continues to counter the unique inflation Currently being viewed. While it was widely speculated that the RBI will raise rates and extend the brakes, the government has also changed import duties to strengthen the fight against inflation.
This is not the first time such a partnership has taken place.
In 2013, when inflation rates were hovering in the double digits, the RBI increased the repo rates and the government imposed import restrictions on gold and metals. A similar alliance was seen in 2018 as well. Following both of these examples, the stock market grew ~50% and ~20% respectively in the following year.
So while history offers some hope for the stock markets, it should not be mistaken that every time there has been a policy mix, the results have been positive. During the global financial crisis, countries that combined both fiscal and monetary policy measures subsequently ended up with either a sovereign debt crisis or high inflation.
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For example, in 2011 the European Union faced a debt crisis and as a result, the London Stock Exchange entered a brief bear market. Hence, there is no one magic formula to deal with any financial crisis and the success or failure depends on the dynamics of the situation.
Currently, India’s major focus has been on curbing inflation, but at the same time not aggressively impacting its growth and fiscal deficit. Therefore, our stock markets have been relatively resilient so far. However, in view of the ever-changing global macro and the rising risk of a global recession, it is difficult to decide whether the joint efforts will yield positive results. In the midst of this uncertainty, there is a high probability that the market will continue to tilt to one side and for some time consolidation is waiting for us.
Nifty 50 closed on a negative note this week, largely in line with global equity indices. At present, Nifty seems to be moving towards the support zone between the levels of 15,900-16,100. Even though this week’s trading pattern indicates further downside risk, the overall bearish momentum has slowed as Nifty is now trading above the falling resistance line.
With these factors in mind, we suggest that traders should maintain a slight downside for a neutral outlook over the next week. Unless Nifty breaks below 15,900, there is a good chance of a move up to 16,800 levels.
The upcoming week is going to be a roller-coaster ride as many important events are about to release. First, all eyes will be on CPI and WPI inflation rates and markets will be closely watching whether the import duty restrictions and rate hike have had a positive impact.
In addition, data on India’s trade balance will be fast-tracked as India’s trade deficit hit a record high of $23.3 billion in May 2022.
Globally, the Fed’s interest rate decision may cause panic in global markets. Hence investors are advised to be cautious and stay on the sidelines till a clear direction in the market emerges.
Nifty 50 ended the week down 2.31% at 16,201.80.