Global headwinds buffet Indian markets in September
After a brief respite in August, financial conditions tightened in September as continued aggressive rate hikes by the US Federal Reserve (Fed) affected risk sentiment globally.
CRISIL’s Financial Conditions Index (FCI) shows that conditions were tighter than the long-term average, but within the comfort zone. The index printed 0.1 standard deviation (SD) tighter than the long-term average (since 2010) in September, compared with the August reading of 0.4 SD easier than average1.
In September, aggressive rate hikes by the Fed turned foreign portfolio investors (FPIs) into net sellers, causing significant weakening in the rupee and equity losses. Going ahead, global shocks could mount more pressure as the Fed stays aggressive and geopolitical uncertainties remain high; both will strengthen the dollar.
Domestic monetary tightening and liquidity reduction have also contributed to rising interest rates, though credit growth is unaffected so far.
1 A lower value indicates tighter financial conditions, and vice versa. Value < 1 SD indicates financial conditions within the comfort zone
