Winning Bizness Desk
Mumbai. The strict policy decisions of the Reserve Bank of India (RBI) to curb inflation can prove dear on the stock market. RBI Deputy Governor Michael D Patra has warned investors about this saying that interest rates may increase further to bring inflation under control. The next few policy decisions of the Reserve Bank will be painful, which will especially affect the stock market. So far, the RBI has increased the repo rate by 0.90 percent within two months and the scope of increasing the repo rate is also seen in the next meeting of the Monetary Policy Committee.
What Dy Governor says?
The Deputy Governor said that RBI's decisions will create double risk on the stock market, due to which small and retail investors can stay away for some time. Increasing interest rates will affect economic growth and the earnings of companies will also decrease. This will affect their performance in the stock market as well. On the other hand, along with the repo rate, the interest rates of FDs of banks will also increase, which can disenchant retail investors from the market. Investors can invest in FDs and other small savings schemes of banks instead of taking risk.
Low inflation & high interest
Investors compare inflation and interest rates for their net returns. At the time of the pandemic, savings interest rates around the world had dropped significantly, while inflation continued to rise. This made the actual return on investment negative. This negative return encouraged investors not only in India but from all over the world to turn to the stock market and take risks for higher returns.
Now that the inflation rate is coming down and interest rates are being increased continuously, investors will start getting positive net return on their savings. In such a situation, instead of taking the risk, they will look out of the market to invest in FD and government savings schemes.
Large participation of small investors in the market
Small investors have emerged as a big support for the Indian stock market. While foreign investors have been disillusioned with the market after the pandemic, domestic investors have poured in money. According to the data received from the market, foreign investors have withdrawn about Rs 3 lakh crore from the market in the last 9 months. However, since the pandemic, retail investors have invested more than Rs 3 lakh crore in the market. Not only this, the number of demat accounts has also doubled to reach around 9.5 crores in the last two years. These figures show that small investors have a large participation in the current stock market, which may decrease after the decisions of RBI.