Hi, you must know that the Indian market is observing a bearish trend for the past 10 days.
Today also, the trend seems to continue.
Today around 12 pm, Nifty was trading down by 2.07% and Sensex by 2.12%.
If you want to know why the market is seeing such sharp corrections, then we made a detailed video on it.
Not only did we cover the reasons but also suggested what you should do as a retail investor.
So I would recommend you to watch that video as well.
It is for you to increase your current understanding of the current scenario.
The link to the video is given in the description.
If we talk about today, the market is down by 2%.
The major reason is the US fed recent meeting.
The central bank for India is RBI, in the same way, Federal Reserve System or FED.
General of US Fed, Jerome Powell gave a few commentaries after the monetary statement on 26th Jan.
After that, fear sentiment has spread across investors and the broader market.
US Fed hasn't increased the benchmark interest rates
But Powell said there might be tightening in monetary policies.
Powell said that due to multi-decade high inflation, US Fed can hike interest rates.
Also, investors believe that Federal Reserve may hike interest rates by 4% in 2022.
According to Investment bank Nomura, in the upcoming March meeting, Fed may hike interest rates by 50 basis points.
So FPI(Foreign Portfolio Investors) and FII(Foreign Institutional Investors) are taking their money out from emerging markets like India.
Since Oct 21 till date, foreign investors have taken 1 lakh crores out of Indian domestic equities.
You must be thinking about why the hike of US Fed interest rates will affect the Indian equity market.
To understand this, we will show you a clip by the famous investor, Shankar Sharma.
He is talking in detail during Thrive 22.
He has explained it in simple terms with examples.
Let's see the clip.
Thank you, sir.
Hopefully, this will continue, a lot of discussions are going on as a lockdown situation is appearing due to Covid.
But after a month or so, things will be normal.
What change is going to come?
Will it sustain for the next 5-10 years or will it go through the typical bull situation?
Last year or in the last session, I talked about the Lake theory.
This year I want to propound on the River of Returns theory.
More accurately, the River of liquidity.
River of liquidity drives the asset classes.
It is the lubricant that drives asset prices.
If you think of the source of the river, it is Gangotri.
Gangotri is the US.
That's where the water starts, ice melts, liquidity starts.
The US sits right at Gangotri.
So they are the first receivers of the freshest and cleanest water on the planet.
It is coming straight from the mountains.
After they have finished drinking, the water comes to the plains.
The Gangetic plain.
Then it goes to the eastern part of India, Hooghly.
By the time it reached here, the water is contaminated, dirty with all kinds of things.
That is the centered on other aspects rather than the lake of returns
River of liquidity holds when the liquidity is abundant, the first receiver is the US.
Because it's the mouth.
The water flows with good speed through the emerging markets where India is more likely in Banaras.
India is not at Hooghly.
If you go down to Indonesia, or the frontier markets in the eastern zone, the water has receded a lot.
This year, we will see less water by Gangotri.
This was unexpected and surprising for me that the US fed will reverse its stance in an aggressive manner.
But it has so whoever is watching this video, remember 1 thing.
Please do not have any fixed views on the future.
As we may get killed.
People have an ego and they might say that they predicted it.
Now things are different, how can I change my views.
We live in a dynamic world and there are changes constantly.
Things were different 4 months back than its today
If as investors, we do not change as per new data or facts, then you cant survive long term in the market.
So now something has changed, the river of liquidity is running low.
This means, buy at large the riskiest assets in the world
What are those riskiest assets?
Like startups, venture capital funds, micro-cap stocks, emerging markets, frontier markets.
In these, the liquidity will be poor.
Gangotri will still get its liquidity as it starts there.
Something has changed in the last 4 months and we must take note of that.
What will happen in 10 years is a different point altogether.
That's a different discussion and I will talk about it.
But this year may not be smooth as the last 2 years.
We must be prepared as we are still in January.
It probably won't be as good as we thought 4 months back.
So here, Shankar sir has proposed River of liquidity in simple words.
So it means that in global capitalist markets, US Fed plays a very important role.
A major chunk of the equity market comes from the US.
And if this capital inflow reduces, it has a direct impact on emerging markets like India.
Then the liquidity reduces.
So now you must have understood the effect of the hike on US benchmark interest rates.
This will increase the yield of the US 10-year Gsec bond.
So the capital of big institutions and investors will flow from risky assets like startups, small-micro, & India to these bonds.
When this happens, the liquidity in the market reduces and corrections are seen.
Even though last 2 years has been good for the Indian market
But you shouldn't expect returns every year.
You should keep in mind the changing economy and capitalist scenario in investing.
As US Fed has cleared its stance, you should manage your risk profile and goal before investing.
We hope you found today's video interesting.
As soon as we get any other update, we will get back to you with it.
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Bye-bye.