The global market has been falling steadily since the beginning of January 2022. In the last one month, Nifty50 has fallen about 12.7% while in the last one week also Nifty50 has fallen about 5.9%.
Nifty is currently trading at 15735.45, down 15% from its all-time high. Due to rising inflation and a weakening rupee, foreign investors are withdrawing money from the Indian market.
FIIs have sold over Rs 50000 crore in May 2022 and this is the second-highest sell-off by FIIs in the history of the Indian stock market. The highest selling was during the covid-19 pandemic in March 2020 when FIIs sold 65000 crores and after that, the highest-selling was only less than 46000 crores.
In just five months from January 2022 to May 2022, the selling of FIIs in the Indian stock market has crossed Rs 275000 crores. FIIs (Foreign institutional investors) have pulled out more money from the Indian stock market from January 2022 to May 2022 than they brought in 12 years.
According to the data, India’s foreign exchange reserve has fallen from $ 642 billion in September 2021 to below $ 600 billion in May 2022 and the main reason for this is a capital outflow and an increase in the dollar rate.
A low forex reserve reduces the import power of the country because the foreign currency is required for import. The reason for Sri Lanka’s economic crisis is also the low forex reserve.
Rising Inflation: Ever since the geopolitical tensions between Russia and Ukraine began, the price of crude oil has been rising steadily and is now at $116 a barrel.
Russia is giving India some discount on crude oil but still record inflation hike has been seen. India imports crude oil, and the increase in the price of crude oil directly affects the Indian and the rest of the global economy.
Crude oil is the world’s one of the most important sources of energy and it is used in all industries, in some industries it is used directly and in some indirectly.
Most of the industries are dependent on crude oil for energy, so due to the increase in the price of crude oil, the production cost of all the industries increases, due to which the price of all those goods and services also increases.
Inflation in the USA is at its 40-year high which is 8.5% now. US 10-year G-Sec Yield rose to 2.84%.
The government is taking several steps to bring inflation under control such as the Federal Reserve has increased its credit interest rate.
RBI (Reserve Bank of India) has increased the repo rate after 4 years to 4.4% and the cash reserve ratio to 4.5%.
The Repo rate controls the inflation of any country. Repo rate and inflation have an inverse relationship when the repo rate increases then inflation decreases and conversely if the repo rate decreases then inflation will increase.
Right now the value of one dollar has exceeded 77.64 Indian Rupee and the rupee rate is at its all-time low. Both Dollar and Rupee are inversely proportional, meaning the higher the dollar rate, the more the rupee rate will fall.
Due to the weakening of the rupee, foreign investors are withdrawing money from the Indian market. This is not the first time, whenever the dollar rate has increased in the past, then it has a negative impact on the Indian stock market.