Cycle of equity market, economy and interest yield

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The market believes that domestic interest rate is likely to reduce in the medium to long-term. A calibrated cut in interest rate in a stable and prosperous economy will have a positive impact on the equity market. Here we elaborate the movement of inflation, interest yield and equity market in the last 5 years. We understand that the relationship of interest rate and equity market are positively correlated given a growing economy. As the economy improves so does the interest yield and equity market, and vice-versa. There is some lag in their relationship given the strength, liquidity and valuation of the market.

Chart and Analysis
Trend of Interest rate in the US market + Bond Yield movement

US Market movement and bond yield

Indian Scenario
RBI repo rate and India Government 10 year bond yield

Sensex and movement of India Government Bond Yield

 

 

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