Spiraling Inflationary pressures deflate global Equities Markets which spiraled upwards to end 2006 with fanfare have not been able to sustain the momentum in 2007. Though robust performance by India Inc. during Q3FY2007 led the markets to touch its all time high of 14,724, the confidence soon fizzled out with rising Interest rates. Low Interest rates, which have fueled the consumption lead growth and hence robust performance for Equities, soon came to halt with the same demand creating inflationary pressures on back of supply constraints. The first three months have witnessed a series of Interest rate hikes, or tightening of the money supply to prevent overheating of the economies. In India, RBI has taken a series of CRR and Repo rate hikes to tame the inflationary pressures. The Finance Minister also did its part to ease the pressures through a series of measures. With the recent hikes, the Repo rates (Rate at which RBI lends money to banks) have moved up by 125bps to 7.75% over the period of 12 months.
Sporadic hikes in Interest rates have put the equities globally on a downward spiral. Indian markets have been no different. The rapid hikes in interest rates have lead markets to shed all the gains posted during the earlier part of the year. Sensex has lost 14% from the highs made during Feb2007.