Indian markets were volatile on Friday as investors turned cautious following a faster than expected rise in global interest rates, hovering 2% before ending the session with marginal gains.

Sensex BSE rose 21.12 points or 0.04% to 52,344.45 while Nifty edged down 8.05 points or 0.05% to 15,683.35. “Weakness in global indices has led Indian stocks to post profits over the past two days. The depreciation of the rupee, rising oil prices and inflation could be short-term surpluses for the market. Nifty corrected around 0.8% for the week, as the slightly hawkish stance of the Federal Reserve at the last Federal Open Market Committee (FOMC) meeting weighed on sentiment, “said Binod Modi, head of the Federal Open Market Committee. strategy at Reliance Securities.

Overall, markets have fallen nearly 1% this week, eroding investor wealth from ₹3.78 trillion. Analysts said with inflation in the United States reaching 5%, global financial markets could become nervous, putting pressure on the Indian rupee. The suspicion of policy normalization by the US Federal Reserve is expected to affect the flow of foreign funds, which have pulled emerging markets like India.

UBS analysts say while some impact on India’s multiple price / earnings (PE) is inevitable whenever global liquidity and Fed action tighten, the larger squeeze could coincide with the tightening of Indian government bonds which is expected to be progressive over the next 24 months. A full contraction of multiples may not occur until there is an appetite for the risk of an external shock or panic event, he said.

UBS said that while global liquidity factors (and Fed action) are important, it keeps an eye out for factors closer to home, such as the RBI move, government bond moves. Indian and household savings. “Our fixed income strategist believes that while there are increasing risks of inflation / policy normalization, the rise in IGB yields should be quite orderly. The team expects 10-year IGB yields to gradually increase from current levels at 6.5% and 6.75% by the end of fiscal 22 and 23, respectively, as the RBI begins. to normalize its policy, ”he declared.

With foreign institutional investors pumping $ 8 billion into Indian stocks so far in 2021, benchmarks have reached record highs. Domestic institutional investors, including mutual funds, pension funds and banks, have been net sellers of Indian stocks worth ₹12,752.87 crore this year so far when unloading ₹2,784.5 crore in June alone.

“Domestic retail direct investment has gained significant momentum over the past two years, which may cushion markets against any exit from FII,” said Rupen Rajguru, head of equity investment and strategy at Julius Baer.

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