On the domestic front, the RBI’s MPC decided to keep the repo rate unchanged for an eighth consecutive time at 4% and continued its accommodative stance. RBI also announced that it will discontinue the Government Securities Acquisition programme aimed at containing bond yields which can be considered as the initial step towards the normalisation of the excess liquidity conditions.
During the week, the US dollar index did pull back from the recent high of 94.50 but kept deriving benefit from the risk-off mode in the market due to issues related to the energy crisis, especially in Europe along with fears of a slowdown in the Chinese economy. Additionally, it is now more evident that the issue in China is not isolated to the Evergrande group; cracks have started to emerge in the Chinese property bonds with the recent default of luxury developer Fantasia Holdings Group when it failed to repay $206 million recently. While the US Nonfarm payrolls data showed that job additions at 194,000 during the previous month was much lower than the expected number of 450,000, the DXY still remained underpinned at the 94 mark given the recent tone of the Fed on tapering.
The noise about a correction in the global equity market has become louder post the indication about a move towards policy normalization by the FOMC in its last monetary policy meeting. In addition, the energy crisis and subsequent rise in oil prices amid recovery from the pandemic, China’s relentless clampdown on Industries, has kept the equity investors on the edge across the globe. India’s very own semiconductor and coal shortfall aren’t helping the cause of domestic equities either. There were only 3 days of coal reserve left as per the latest update, this shortage could be severe as India produces 70 per cent of its electricity from coal and could lead to power outages in many states. Global central banks preparing the ground for withdrawal of liquidity support announced during the Covid crisis at a time when the world is undergoing supply-demand mismatch has led to increased worries among equity investors. Owing to the several factors mentioned above the probability of a decent correction in Indian and global equities seems likely.
Historically, Indian equities like most markets have followed a similar theme since 2000. They tend to fall severely…
Read More: forex news: Cross Currency | History doesn’t repeat itself, but it often