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Doubt

anand kumar (student) (39 Points)

20 May 2013

hello all

My concern here is :- recently RBI governer has announced lowering the intrest rate , subsequently i found sens*x moved up with some positive point , so my question is how these both are interconnected with each other?

how capital market , debt market and commodity market are interrelated to each other?

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3 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 20 May 2013

When interest rate is lowered, public can eaily take loans from the Banks / Financial Institutions, thus such loans can be used to invest in the Stock Market. Hence the Stcok market (SENSEX) rises.

Remember

More Investment in Stock market - SENSEX Rises

More Withdrawal of Investment from Stock Market - SENSEX Falls

Regards,

Devendra Kulkarni

1 Like

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Bhaavna (Queen ) (1933 Points)
Replied 04 July 2013

Originally posted by : Devendra

When interest rate is lowered, public can eaily take loans from the Banks / Financial Institutions, thus such loans can be used to invest in the Stock Market. Hence the Stcok market (SENSEX) rises.

Remember

More Investment in Stock market - SENSEX Rises

More Withdrawal of Investment from Stock Market - SENSEX Falls

Regards,

Devendra Kulkarni

I too agree

Prof. Bajaj (Author Mentor Motivational Speaker Wealth Planner) (7375 Points)
Replied 05 July 2013

My thoughts are pretty different from Mr. Devendra.

When interest rates are lowered, following things are expected to happen:

1. Corporates can raise cheaper debts which lowers their interest costs and thereby increases their profitability. This increased profitability pulls investors to markets and thus sens*x rises.

2. When interest rates are high, investors get good returns from Bank FDs. Thus, they dont invest in equities. But when interest rates are lowered, they have to come to equity markets to get good returns. Thus, the sens*x rises.

People borrowing to invest in equities is primarily a bad idea. I am not saying that people are not doing it, but the percentage of people doing so is very low. Thus, the main reasons for rise in sens*x could be as stated above.

Regards