Ever since fed tightening began early this year, the stock market hasn't shown much enthusiasm. The hype around tech stocks has largely died down, fears of a recession are lurking around, the start-up ecosystem is hit, unicorns are switching back to first gear, and inflation's still high. Indian Markets have come under a lot of pressure due to FII selling. In recent months, Investment Banks have upgraded their rating on China from negative to neutral/positive. So the money that had flown out of Chinese markets into Indian markets will be going back to China. Hedge funds are being bullish on China, and are allocating more funds to the Chinese markets, this, in fact, has aided in the extensive FII outflow that India has witnessed for the few months. Interest rates across the globe are surging, and this has a negative effect on developing countries and their currencies. When interest rates surge, FIIs move their money to safer assets like bonds(short-term treasuries), and FDs, because the government or the bank is offering them a good interest(Actually small compared to the returns from the equity markets) at literally zero risks. Usually, in times like these, FIIs park their money in dollar-backed assets, and therefore increase the demand for the US dollar, as the US dollar strengthens, other currencies depreciate in value. The same is happening with the Indian rupee, as FIIs pull out of the Indian Markets, there's less demand for the INR and more demand for the USD, and hence the INR is likely to remain under pressure in the coming days. And not just that, this also has a cyclic effect, where FIIs still invested in India start to pull out their holdings because the INR is depreciating and their investments in INR-backed assets will also depreciate further. Fearing that their investment value would be eroded, FIIs who trust the Indian Market are also forced to pull out, and as they pull out again, INR weakens in front of the USD, because there's less demand for the INR.
Also, the Russia-Ukraine war has just made Crude oil skyrocket, stressing the economy and increasing inflation. Petrol and diesel are used to transport goods, therefore an increase in crude oil prices will have a direct impact on the prices of other commodities. Not just that, the Russia-Ukraine war is going to drastically affect food-producing and importing countries in huge ways. The world is going to face a fertilizer shortage due to the ongoing sanctions on Russia. Also, to manufacture nitrogen fertilizers elsewhere, we need natural gas, and as Russia is a leading supplier of natural gas, there's a shortage of raw materials to manufacture nitrogen fertilizers elsewhere. So, there's no way we can get around the fertilizer shortage that is imminent. Therefore food supplies are going to be drastically reduced. Many countries are already placing export bans(India, and Indonesia to name a few) on critical food supplies. Shortage of supplies is going to drive inflation up and to mitigate that the fed will have to continue increasing interest rates. So where's the market headed for the next two years. The fed holds eight meetings in a year. Which, they are going to use every opportunity to raise interest rates. Whenever the interest rates are increased the FII outflow is going to increase, and whenever there is a fed meeting coming up, the markets are going to be stressed. So we will be in a bunny market for the next one or one and half year. Whenever the fed meeting is over, the markets might try to regain their composure, but by the time markets adjust, there will be another fed meeting coming up. The markets will be put under pressure once again, and this is going to happen all over a lot of times in the next 13 to 18 months until the fed stops raising interest rates.