Comments
Domestic financial conditions were tighter in August, relative to July, CRISIL’s Financial Conditions Index (FCI) shows.
The gauge, which captures India’s major market segments, moderated to 0.5 in August from 0.8 the previous month. Global investors are readjusting to the diverging economic trajectories and monetary policies of major economies.
While the Federal Reserve (Fed) has cut rates from September, Bank of Japan (BoJ) hiked its rate at July-end, which triggered the unwinding of ‘yen carry trade’ and disrupted global financial flows in August
Investors factored in signs of weakness in the two biggest economies — the US and China — which led to a decline in crude prices, weaker US dollar, and easing US bond yields
Bank credit growth
“These wide-ranging global developments helped some of the segments of India’s markets and hit the others. Foreign Portfolio Investors (FPIs) inflows reduced in August, hitting equity market the most, while the rupee depreciated mildly. However, the bond market, which benefited from falling crude prices and US yields, and the continuing effects of India’s inclusion in the JP Morgan Emerging Market Bond Index, handled the global turbulence better,” Crisil said.
Domestic factors remained supportive as systemic liquidity conditions improved and bank credit growth remained strong. Easing domestic inflation, coupled with the imminent Fed rate cut, is further creating conditions for the Reserve Bank of India (RBI) to begin its easing cycle in the second half of this fiscal.
FPI inflows
FPIs remained net-buyers in Indian markets in August, but net inflows declined to $3 billion from $5.8 billion in July. The equity segment saw a significant decline in net FPI inflows, from $3.9 billion to $0.9 billion, due to increased volatility in equity markets. The debt segment saw robust inflows at $2.1 billion, though it was lower than in the previous month ($2.7 billion)
The rupee depreciated to 83.9 against the US dollar in August, 0.4 per cent weaker compared with July (83.6), led by lower FPI inflows and a wider trade deficit. However, a weaker dollar supported the rupee
Volatility increased in August, with the Volatility Index averaging 14.9 in August (vs 13.9 in July) due to the unwinding of yen carry trade and US recession fears. The benchmark indices S&P BSE Sensex and Nifty 50 were broadly unchanged on average, rising 0.1 per cent and 0.5 per cent, respectively.
Rise in bank lending rates
Some bank lending rates inched up in August, compared with July. The one-year marginal cost of funds-based lending rate (MCLR) increased to 8.9 per cent from 8.85 per cent, while the auto loan rate was up 1 bp averaging 9.82 per cent. Deposit rates were stable at 6.86 per cent.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.