Rising interest rate ‘to hit retail flows’ into stocks


With persistent falls in benchmark indices due to massive foreign portfolio selling and a gradual rise in bank interest rates, retail investors’ position, as a force to be reckoned with, in the equities market will be put to the test.

Taking cue from global markets, equity indices had posted their worst week in over two years on June 17 amid concern over foreign capital outflows, along with rate hikes by central banks around the globe and stubborn inflation .

The BSE benchmark Sensex ended 135 points or 0.26 per cent lower at 51,360 levels, while the Nifty dipped 67 points or 0.44 per cent to 15,293 in their sixth straight session of losses.

In last one week, Sensex had plunged 1,487 points while Nifty had dipped 499 points.

FD rates hiked

On the other hand, reacting to repo rate (at which RBI lends to banks) hike, several banks including SBI, HDFC Bank, Bank of Baroda and Kotak Mahindra Bank, IDBI Bank and Punjab National Bank have increased their fixed deposit rates. In the last two months, RBI has announced two consecutive repo rate hikes of cumulative 0.90 per cent to 4.9 per cent.

The country’s largest public sector bank SBI has increased its FD rates for deposits below ₹2 crore with tenures ranging from 211 days to less than three years to 4.60 per cent and 5.35 per cent per annum. Senior citizens will get a 0.5 per cent higher rate.

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

In the near term, he said the key factors to track include inflation and monetary policy, the trajectory of commodity price movement especially oil, development on the Ukraine-Russia war and outlook on domestic demand and corporate earnings.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said while a set of investors will certainly shift from equity to bank fixed deposit with the rising interest rate, the movement will be aggravated only if the Nifty falls to 14,500-level.

The macro image of Indian economy still appears to be bright with rising bank lending to corporates, higher direct tax and GST collections though inflation remains a concern, he added.

Direct tax collection had increased 51 per cent to ₹2.8-lakh crore in the current quarter till June 15 against ₹1.85-lakh crore logged in the same period last year. Total advance tax collections were up by about 49 per cent to ₹42,680 crore (₹28,779 crore) between April 1 and June 15.

Published on

June 18, 2022

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