Despite a largely anticipated step by the US Federal Reserve to announce measures to tighten liquidity, the Indian stock markets soared in end September. An IMF official has recently said that tapering by the US Fed might see some hot money moving out of India. Thanks to widespread discussion in the media, we all know that that tapering refers to withdrawal of stimulus by the Fed that was applied during the Covid. At one level it would indicate a rise in US interest rates though not immediately. The behaviour of the Indian stock market in the face of US Fed actively considering tapering would have been unthinkable even a few years ago, when it would have sent jitters in our equities market.
However, post-Covid, the Indian markets have undergone a radical change. The number of investors in the equity market has gone up by a huge number. More than 1.42 crore new demat accounts were created in FY21, which is thrice the figure achieved in FY20. These first tie investors have poured in a lot of money in the markets. That’s not all. Another big section of investors, who are either scared of taking a direct exposure to the complicated equity markets or don’t have time to study and track the markets regularly, have brought in a lot of money through the mutual fund route.
Thanks to these two streams, the Indian equity market has become extremely robust. In fact, the foreign investors have pulled out about Rs 1,472 crore from the Indian capital markets this month but the indices have continued their bull run merrily. Moreover, with the country recognised as the strongest emerging market, the money being pulled out will be a far lot less.
That any possibility of hot money leaving India has not sent down any shivers is partly attributable to the fact that India is sitting on forex reserves of $640 billion, a historic high. The performance on the export sector too is a comfortable cushion. During the pandemic, the country also successfully attracted FDI while there was a dip in many developed economies.
Download Money9 App for the latest updates on Personal Finance.