After opening the day marginally higher, stock markets in India have continued their momentum. Presently, they are trading near their all-time high levels.
Indian indices are scaling new highs of late. And there’s a flood of liquidity pouring into Indian stock markets in search of higher returns.
One of the key factors behind the above flow of liquidity is the downward trend in interest rates. And the demonetisation drive last November accelerated this trend. Indian banks were flushed with liquidity. At the same time, credit offtake was poor. This forced them to cut interest rates on deposits.
Interest rates are a key macroeconomic variable that influence the economy. From a recent premium edition of The 5 Minute WrapUp (subscription required)…
As a thumb rule, lower interest rates aid corporate profitability as businesses pay lower interest on their borrowings. On the other hand, declining interest rates mean lower earnings on fixed deposits for investors and savers.
Both of these effects of lower interest rates have a positive impact on stock markets.
One must note that the above rise in Indian stock markets has also led many stocks to trade at expensive valuations.
But even as the Equitymaster analysts grow increasingly wary of market valuations, their bottom-up approach continues to uncover new opportunities. Many of which most investors, especially the hordes of novices, have never heard of.
Sectoral indices are trading on a positive note with stocks in the consumer durables sector, energy sector and FMCG sector witnessing maximum buying interest.
The BSE Sensex is trading up 191 points (up 0.6%) and the NSE Nifty is trading up 45 points (up 0.5%). The BSE Mid Cap index is trading up by 0.3%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 64.41 to the US$.
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