How Modi's demonetisation and Trump win are pinching Dalal Street
The demonetisation drive announced by the Narendra Modi government has created a severe cash crunch, hitting transactions in consumer durables, real estate, jewellery and auto sectors.
Post the announcement of the demonetisation drive, the BSE's consumer durable index slumped 900 points in less than two trading sessions due to low demand projection for goods in the near future as there is a big cash crunch countrywide.
At the prospect of the US Federal Reserve raising interest rates rises following Donald Trump's win in the election, emerging markets are feeling the heat.
It is likely that funds will flow out from emerging markets to the US, chasing higher rate of interest. Under pressure, even Asian markets witnessed a mixed trend in trade yesterday.
| Funds will have to flow through the automatic route in the near future. Credit: Reuters |
The rupee fell to a low of 67.75, slipping by 50 paise, apace with the weak economic projections released last week as well as the US dollar movement, which is at its 14-month high yesterday.
The market nosedived on Tuesday after a three-day break. While the Sensex fell by 514 points, Nifty was down by 187.5 at 8,108 points. This is not really the lowest this season, since we have seen it plunge to 7,608 points.
After suffering heavy losses in the past two sessions, the Indian stock market gained some ground Wednesday morning, with a few frontline counters witnessing strong buying interest in early trade.
Positive cues have emerged from global markets amid a rebound in crude oil prices and some strong economic data out of the US. According to the broad predictions of experts, the NSE index will settle down around 8,100-8,200 points after minor corrections.
The dominant feeling is that external factors like the US elections, the consequent win of Trump and the possible Fed rate hikes don't have a lasting impact on Indian stocks. However, the trash-to-treasure move of the government through a sudden demonetisation drive may spur activity in stocks due to funds having to flow through the automatic route in the near future.