What is contributing to the downturn in Indian markets?
(Source – The Hindu, International Edition – Page No. – 10)
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Topic: GS3 – Indian Economy |
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Context |
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Impact of U.S. Tariff Policy
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The U.S. President has directed an increase in tariffs on steel and aluminium imports to protect American industries.
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This move has caused concerns in Indian markets about possible dumping of excess Asian steel in India, leading to lower prices and increased competition.
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Indian steel manufacturers are already seeing price reductions, with reports of Net Smelting Return (NSR) dropping by ₹1,800 in one quarter.
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India’s Directorate General for Trade Remedies (DGTR) is investigating the import of steel products to address concerns of unfair trade practices.
Foreign Investment Outflow
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FIIs and FPIs are shifting their investments to U.S. bonds, which are seen as safer compared to Indian markets.
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Higher U.S. bond yields attract foreign investors away from Indian stocks, leading to capital outflow.
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Contributing factors to this trend include slow domestic earnings growth, high stock valuations, inflation exceeding the Reserve Bank of India’s (RBI) 4% threshold, and trade uncertainties.
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The continuous FII selling has impacted market sentiment, with foreign investors selling ₹93,907 crore in Indian markets this year.
Impact on Stocks
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Mid-cap and small-cap stocks are experiencing price corrections due to heavy sell-offs.
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Domestic institutional investors are absorbing some of the foreign outflows but not enough to prevent the market downturn.
Near-term Outlook
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The possibility of a trade war, global economic slowdown, and geopolitical tensions could continue influencing markets.
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FIIs are expected to return when Indian economic growth and corporate earnings improve and when the U.S. dollar weakens.
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Systematic Investment Plan (SIP) flows are expected to remain strong and help absorb a portion of the market selling pressure.
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Practice Question: Discuss the impact of rising U.S. tariffs and foreign institutional investor (FII) outflows on the Indian stock market. How can India mitigate these risks? (150 Words /10 marks) |
