Markets in India’s capital are recovering from the shock of the demonetisation of high-value banknotes and a steep plunge in the rupee.
Market sentiment is up for a third straight year, according to the latest data released on Wednesday by the Reserve Bank of India (RBI).
But sentiment for the stock market is still negative, and it is a rare sign of positive sentiment in the market.
The Indian market has seen a sharp decline in trading volume, with trading volumes falling by more than 1.5 per cent in January-March, compared with the same period last year.
It fell to just over 1.7 per cent, while the market capitalisation fell to Rs 2,632 crore, from Rs 2.94 lakh crore.
Market analysts expect the rupees to weaken in the coming months, which could lead to a slowdown in the growth in the economy and a sharper contraction in the real value of the ruis in the future.
Analysts said the ruashions collapse was due to an adverse shock in the retail sector, as retail investors were hit by the high-denomination notes, which are also the main source of revenue for the cash-strapped state government.
“The government has taken several steps to reduce cash withdrawals.
In addition, the government has also introduced several new schemes to encourage citizens to withdraw Rs 500 and Rs 1,000 notes.
The RBI has announced a new Rs 1 lakh withdrawal limit.
But there are still a large number of cash transactions going on in the streets and the government is taking steps to curb the impact of these events,” said Nandan Nilekani, research fellow at the Institute of Development Studies, Jawaharlal Nehru University.
The Reserve Bank has said that demonetization would be completed in two to three months and that the banking sector is in a positive position as it has no major problems and will continue to be solvent.
“The RBI has also said that there are no negative consequences for banks and investors, so there is no immediate risk of a negative impact on the financial sector,” said Nilekian.
“This is in contrast to the outlook of most markets in India, which have seen the impact on stock prices.”
The RBI is expecting the market to fall further in the next few months as people start to withdraw money from banks.
India’s stock market has risen almost 20 per cent this year, while its benchmark index has risen nearly 25 per cent.
The country’s currency has been depreciating against the dollar since mid-April.
On Tuesday, the Reserve Board of India said the demonitisation move has brought the ruas exchange rate to a level below where it was at before the demonisation drive, and that it has already caused a negative shock to the ruahs foreign exchange reserves.RBI governor Raghuram Rajan said the central bank has taken steps to stabilise the ruase price, with a further adjustment to the exchange rate being taken after three months, in order to mitigate the impact.