Indian markets do better than global leaders despite interest rate hikes

Stock markets have a strange relationship with interest rates. They don’t necessarily move in tandem or against each other. Rising interest rates are not the best thing that may happen to markets.

Yet, falling interest rates may be good initially, but over longer periods, the results may not be the same. A certain amount of inflation is good for stock markets and their performance gets better when there is moderate inflation.

If one looks at the performance of stock markets on a calendar basis since 2005, there have been eight instances when markets have gained between 0 and 25 per cent, six instances when they have gained between 26 per cent and 50 per cent, and just one instance when they gained more than 76 per cent.

This was in 2009 when the BSE SENSEX gained 87.21 per cent and NIFTY was up 82.03 per cent. It was the year immediately after the Lehmann crisis. On the negative side, there have been two instances when the markets lost between 0 and 25 per cent and one instance when they lost more than 50 per cent. The worst loss was in 2008 during the Lehmann crisis when BSE SENSEX was down 53.83 per cent and NIFTY 53.00 per cent.

In summary, in the past 18 years, gains were seen in 15 out of the 18 years.

Interest rates in the country have been quite steady. Prior to the beginning of 2000 they were at a high of 8 to 11 per cent. They then moderated to around 5 per cent. From 2009-2012 we saw a rising interest rate scenario, where rates rose from just over 4 per cent to more than 8.5 per cent. In this period, markets rose in 2009 and 2010, fell in 2011 and were up in 2012 once again. They rose three out of four years.

This calendar year has seen the RBI raise rates with rising inflation and global interest rates continuously from 4 per cent to just under 6 per cent. Markets in the 11 months of the current year are up about 8% and are at their lifetime highs.

India is one of the better performing markets globally and has given -positive returns while most are negative. Currently the Dow is negative 5.25 per cent.

In conclusion, a little bit of inflation and a steady interest rate scenario is the best that markets could ask for. Little bit of lower or higher interest rates do not make a difference to markets. They take it in their stride.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

20221203-190603

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