Why are Indian stocks hitting record highs so often?

Indian bourses soared to record highs once again on Friday, with the BSE flagship Sensex breaching the 60,000-mark for the first time ever, and the Nifty 50 index inching closer to 18,000 points.

Overseas factors are likely to be a major reason. In particular, the US Federal Reserve may not withdraw emergency pandemic support, as many had feared. There has also been an expectation of continued economic recovery in India as memories of the devastating Covid wave earlier this year recede. And now, with the market seemingly overheating, investors in India may also think it’s time to withdraw.

Why does the US Fed matter?

When the Federal Reserve raises or cuts its interest rate, it makes borrowing funds either more or less expensive for businesses. This, in turn, tends to affect earnings and stock prices. Apart from interest rates in the current scenario, the US central bank’s emergency pandemic support added more money to the financial system, prompting investors to buy high-yielding stocks.

The importance of US equities is significant, as any movement in American stocks spills over to global indices, including India.

On September 22, the Fed announced that it could begin scaling back its monetary support in November, and complete the process by mid-2022.

While several officials hinted at a growing inclination to raise…

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