Vinod Bhat's Market Pulse - Aug 3, 2022
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Geopolitics is in focus again with US House Speaker Nancy Pelosi’s visit to Taiwan. Although China issued some warnings to the US and announced that it will launch targeted military operations, it’s measured response meant demand for safe-haven assets retreated.
However, US-China confrontation over Taiwan could cause an escalation in strategic tensions in the near-to-medium term and remains a macro risk to be monitored.
In addition, Fed officials also reiterated that they would continue with aggressive rate hikes until inflation comes under control which sent US Treasury yields higher and the Dollar also strengthened.
In India, equity markets continue to be resilient as retail equity inflows continue to be strong and FII outflows also seem to be reversing. In the June quarter, investors deployed $12.2 bn (INR 95,000 Cr) into Mutual Funds and $6.1 bn (INR 48,000 Cr) directly into stocks.
Individual investors have predominantly bought large cap stocks whereas most retail money previously went to smaller stocks. In effect, retail has been providing liquidity to absorb large FII selling since Oct’21.
The number of active Demat accounts is up 2.4x since March-20 (to 94 million now), but penetration can still improve over the med-to-long term with rising incomes and awareness.