Rising bank interest rates attract private equity investments

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With continued declines in benchmark indexes due to massive foreign portfolio sales and a gradual increase in bank interest rates, retail investors’ position as a force to be reckoned with in the stock market is being tested.

Taking global markets as a backdrop, stock indexes had posted their worst week in over two years on June 17 amid concerns about foreign capital outflows, along with interest rate hikes by central banks around the world and stubborn inflation.

The BSE benchmark Sensex ended 135 points, or 0.26 percent, lower at 51,360 levels, while the Nifty fell 67 points, or 0.44 percent, to 15,293 in its sixth consecutive losing session.

Over the past week, Sensex was down 1,487 points while Nifty was down 499 points.

FD interest rates raised

On the other hand, in response to the increase in the repo rate (at which the RBI lends awarded to banks) increased their fixed deposit rates. In the past two months, the RBI has announced two consecutive repo rate hikes from 0.90 percent cumulative to 4.9 percent.

The country’s largest public bank, SBI, has increased its FD rates to 4.60 per cent and 5.35 per cent per annum on deposits under £2bn with maturities from 211 days to less than three years. Seniors receive a 0.5 percent higher rate.

Shibani Kurian, Head of Equity Research, Kotak Mahindra Asset Management Company, said inflation is clearly the focus and one of the key factors influencing monetary policy stance, and markets reacted last week to the heightened risks of a global recession amid persistently higher inflation reacted.

Key factors to monitor in the short-term include inflation and monetary policy, developments in commodity price movements, especially oil, developments in the Ukraine-Russia war, and prospects for domestic demand and corporate earnings.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said while a number of investors will certainly switch from equities to bank deposits as interest rates rise, the move will only worsen if the Nifty falls to 14,500.

The macro picture of the Indian economy still looks good, with rising bank lending to businesses, higher direct taxes and GST levies, although inflation remains a concern, he added.

Direct tax collection had risen 51 percent to 2.8 lakh crore in the current quarter ended June 15, from 1.85 lakh crore in the same period last year. Total tax prepayments rose about 49 per cent to £42,680 billion (£28,779 billion) between April 1 and June 15.

Published on

June 18, 2022

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