Current Equity Market Correction:
1. Tight Liquidity: Liquidity conditions are significantly negative, around ₹2.5–3 lakh crore.
2. Rupee Depreciation: The rupee continues to weaken and is expected to stabilize around 92, according to experts.
3. US Interest Rates: Elevated US interest rates and an inverted yield curve are adding pressure.
4. Weak Corporate Earnings: Disappointing earnings in Q2FY25 have impacted market sentiment.
5. Government Capex Allocation: A significant portion of capex is directed toward non-multiplier segments, reducing its overall productivity.
RBI’ yesterday addressed Liquidity and Currency Concerns
1. Open Market Operations (OMO): ₹60,000 crore G-Sec purchase to inject liquidity.
2. 56-Day VRR Auction: ₹56,000 crore through a Variable Rate Repo to address short-term liquidity needs.
3. USD/INR Swap: A $5 billion buy/sell swap for six months to stabilize the rupee and manage forex reserves.
These measures are equivalent to a “rate cut” in terms of their impact and signal the RBI’s proactive stance.
Other Factors
1. US Interest Rate Outlook: Rate cuts are expected by Q3 CY2025 as prolonged high rates could strain the US economy.
2. Corporate Earnings: Earnings recovery is anticipated from Q2 FY26 as macro conditions improve.
3. Capex Allocation: The upcoming budget may emphasize productive, growth-oriented investments.
Investment Strategy Amidst correction and Volatility
The next six months could remain volatile due to these factors. This presents an opportunity to:
1. Invest systematically in equity-oriented products that have the potential to generate alpha.
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