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February 3, 2011
January 1, 2006
Bearish symptoms

Then: After 9,000 it's only natural that the punters start setting new targets for the benchmark Sensex - 12,000, and 15,000 for 2006 are just two of them. Such naked bullishness is not unwarranted, but it is not as if there are not any dark clouds hovering over Phiroze Jeejeebhoy Tower, the headquarters of the Bombay Stock Exchange (BSE). One particularly gloomy patch in the sky is courtesy the rupee's decline against the US dollar, which has been a major worry for foreign institutional investors (FIIs), whose liquidity has been largely responsible for the current bull run. A falling rupee will naturally bring down the returns of FIIs investing in Indian market.

Yet another factor that is turning the tide against India is the measured hike in the US Fed rate from a decade-low one per cent to four per cent. With rates expected to go up to 4.5 per cent or a maximum five per cent, short-term speculative FII dollar inflows have received a jolt. The Fed rate hikes are boosting the dollar, as more Asian economies begin chasing the US treasury for higher returns.

In the meanwhile, corporate India is in expenditure mode, which could bring down the return on equity and the return on capital employed. The rising interest rates, domestically and globally, will also put pressure on the margins. In fact, South Korea, Indonesia, Thailand, and Singapore have seen upward movements in interest rates. Are the FIIs watching?

Now: It is a complete trend reversal. Surging FII inflows are driving the Indian stock market. Higher interest rates in India make the country a magnet for foreign capital, putting upward pressure on the rupee.

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