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The Impact of a Major Crypto Market Crash on the Indian Stock Market

17 May 2022

Bitcoin and Ethereum are currently trading at their lowest levels. There are two major factors behind this week’s cryptocurrency crash. The first is rising interest rates around the world. Last week, the US Federal Reserve increased the interest rate from 0.5% to 1%. Similarly, the Reserve Bank of India increased the repo rate from 4% to 4.4%. Normally, rising interest rates make bond yields grow, and those become more attractive as investments compared to riskier assets like stocks and cryptocurrencies.

The second factor was the unpegging of stablecoin Terra’s UST which was earlier pegged to the USD. That infused fear and distrust in the cryptocurrencies among the investors. Together, these two factors caused a major cryptocurrency crash that happened this week.

Vulnerability of the Indian Stock Market

Next week, Sensex may remain weak. A higher repo rate, lower IMF GDP forecast, rising oil prices, and a weakening Indian rupee together contributed to the fall in the Indian stock market. In the meantime, the crash in the cryptocurrency market shows how investors are losing faith in riskier assets. The Indian foreign exchange reserves dropped below $600 billion because of a pullout of FPI’s from the Indian stock market.

Sensex may remain slightly negative to range bound. We believe it can touch the levels of 52,500 next week. In case of a severe drop, Sensex may come down to 50,000.

FMCG is a key market sector during the general decline of the stock market. The primary reason for its potential resilience is the expectation that people need food and basic household products at all times. Therefore, while the larger market is crashing, FMCG sector is in an uptrend. The stock price performance of HUL, India’s Biggest FMCG company by market cap, indicates well the upward momentum.


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