Will Ceasefire & FPI Inflows Lift Markets This Week?
The Indian stock market witnessed a tumultuous week, with the Sensex tumbling by 1,047 points. The benchmark index was hit hard by the ongoing tensions between India and Pakistan, which led to a sharp decline in investor sentiment. However, with the news of a ceasefire agreement between the two nations and the return of Foreign Portfolio Investors (FPIs), there is renewed hope that the market may rebound this week.
In this blog post, we will examine the factors that led to the market decline and the potential triggers that could lift the market this week.
Factors That Led to the Market Decline
The market decline was largely driven by the escalating tensions between India and Pakistan. The tensions began to rise after the Pulwama terror attack on February 14, which claimed the lives of 40 Indian security personnel. The attack led to a surge in nationalist sentiment, with many calling for a military response. The government subsequently launched airstrikes on terrorist camps in Pakistan, which in turn led to a retaliatory attack by Pakistan.
The tensions led to a sharp decline in investor sentiment, with many investors opting to exit their positions in the Indian market. The Sensex tumbled by over 1,000 points in a single day, wiping out over Rs 5.5 lakh crore in market capitalization. The decline was widespread, with all the major sectoral indices, including banking, finance, and real estate, suffering heavy losses.
Q4 Results: A Silver Lining
Despite the market decline, there were some positive signs that emerged in the form of strong Q4 results from many companies. The results were largely driven by the robust performance of the IT sector, which saw companies like TCS and Infosys reporting strong numbers. The results were a testament to the resilience of the Indian economy and the ability of Indian companies to adapt to changing market conditions.
Easing Tariffs: A Potential Trigger
The ease in tariffs imposed by the US on Indian goods is another positive sign that could lift the market this week. The US had imposed tariffs on various Indian goods, including steel and aluminum, citing national security concerns. However, the US government has since removed the tariffs, which could lead to an increase in demand for Indian goods and a corresponding boost to the market.
FPI Inflows: A Return to Calm
The return of FPIs to the Indian market is another factor that could lift the market this week. FPIs had pulled out large amounts of money from the Indian market in recent weeks, citing the tensions between India and Pakistan. However, with the news of a ceasefire agreement, FPIs may now return to the market, which could lead to a boost in investor sentiment.
Currency and Reserves Data: A Positive Sign
The latest currency and reserves data also point to cautious optimism. The Reserve Bank of India (RBI) has reported that the country’s foreign exchange reserves have surged to a record high of over $430 billion. The surge in reserves is a testament to the country’s strong economic fundamentals and the ability of the RBI to manage the currency.
The data also shows that the rupee has strengthened against the US dollar, which is a positive sign for the economy. The strengthening rupee has led to a decline in imports, which could lead to an increase in exports and a corresponding boost to the economy.
Travel and Tourism: A Recovery in Sight
The travel and tourism sector was hit hard by the tensions between India and Pakistan. Many tourists cancelled their trips to India, citing concerns about safety and security. However, with the news of a ceasefire agreement, there is a possibility that the sector may recover in the coming weeks.
The sector has already begun to show signs of recovery, with many tourists returning to India. The recovery of the sector could lead to an increase in demand for hotel rooms, airline tickets, and other travel-related services, which could lead to a boost to the economy.
Conclusion
In conclusion, despite the market decline, there are several factors that suggest the market may rebound this week. The news of a ceasefire agreement between India and Pakistan, the return of FPIs, and the ease in tariffs imposed by the US are all positive signs that could lift the market. The strong Q4 results and the recovery of the travel and tourism sector are also positive signs that could lead to a boost in investor sentiment.
The currency and reserves data also point to cautious optimism, with the country’s foreign exchange reserves surging to a record high and the rupee strengthening against the US dollar. While there are still risks involved, the overall outlook for the market is positive, and investors may want to consider taking a contrarian view and buying into the market.
News Source:
https://www.thecore.in/podcasts/markets-set-to-edge-up-on-ceasefire-moves-835131
