The Fed expects the rate to be around 5% by end-2024, and 4% a year later, compared to today’s 5.25-5.50%. These levels are higher than expectations earlier this year. Further, the strong US growth figure for the September quarter, at 4.9%, provides little incentive for rate-cutting. This has driven US treasury yields higher and roiled world markets. Geopolitical uncertainty hasn’t helped either. Indian markets are closely correlated with global markets. The rich multiples that Indian indices command always leave them vulnerable to a correction, as FPIs prefer to book profits. Also, the pool of large-cap liquid stocks preferred by foreign investors is not growing, though the surge in IPOs should eventually enlarge the basket.
What has acted as a countervailing force to FPIs are the growing domestic investments. While FPIs have pulled out ₹22,850 crore in October, domestic institutional investors (MFs and insurance) have been net buyers to the tune of just under ₹25,000 crore. Then, there is the surge in post-pandemic investments via the SIP route. In September, 36.77 lakh new SIPs were started. These investors will have their faith sorely tested over the next few months. But mid-term, there may be less to worry about with India set to become the world’s third-largest economy by 2030. While there’s no strict correlation between markets and GDP growth, it’s hard to see that sort of rise in the global pecking order not being eventually reflected in rising share prices.
