RBI, Stock Market & Monetary Policy

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Questions and Answers

How might a sudden increase in interest rates by the Reserve Bank of India (RBI) impact the Indian stock market, and what specific sectors could be most affected?

Increased interest rates may lead to higher borrowing costs for companies, potentially reducing corporate earnings and investment. Sectors like real estate, banking, and automobiles, which are sensitive to interest rate changes, could be most affected.

Explain how increased retail participation, driven by fintech platforms, could lead to both increased market efficiency and potential risks in the Indian stock market.

More retail investors can increase market liquidity and efficiency by providing diverse trading activities. However, it may also introduce risks such as herding behavior and less informed investment decisions, potentially increasing market volatility.

Describe how changes in US monetary policy could affect Foreign Institutional Investors' (FIIs) investment strategies in the Indian stock market.

Tightening of US monetary policy may lead to FIIs withdrawing investments from emerging markets like India to invest in safer US assets, potentially causing a market downturn.

What is the function of circuit breakers in the Indian stock market, and under what circumstances are they activated?

Circuit breakers are mechanisms that temporarily halt trading to prevent panic selling during significant market declines. They are activated when the market index falls by a specified percentage within a trading day. Signup and view all the answers

How does the T+1 settlement cycle impact liquidity for investors compared to a longer settlement cycle?

A T+1 settlement cycle improves liquidity by allowing investors to receive funds or shares one day after the transaction, enabling faster reinvestment or access to capital, and reducing counterparty risk. Signup and view all the answers

Explain how a company might use a stock split, and what is the likely impact on the company's market capitalization?

A stock split increases the number of shares and decreases the price per share, making the stock more accessible to retail investors. The market capitalization of the company remains the same immediately after the split. Signup and view all the answers

How might increased focus on ESG (Environmental, Social, and Governance) factors influence investment decisions and stock valuations in the Indian market?

Increased focus on ESG may lead to greater investment in companies with strong ESG practices, potentially increasing their stock valuations and driving capital away from companies with poor ESG records. Signup and view all the answers

Differentiate between fundamental analysis and technical analysis, and explain which might be more useful for a long-term investor.

Fundamental analysis evaluates a company's financial health and intrinsic value using financial statements and economic conditions. Technical analysis uses historical price and volume data to identify patterns. Fundamental analysis is generally more useful for long-term investors. Signup and view all the answers

What are the benefits and risks of investing in derivatives compared to investing directly in equities?

Derivatives can offer higher leverage and potential returns compared to equities, but they also carry significantly higher risk due to their complex nature and sensitivity to market movements. Equities involve direct ownership, providing more stability but potentially lower returns. Signup and view all the answers

Describe how negative global events such as geopolitical tensions could impact investor sentiment in the Indian stock market.

Geopolitical tensions can create uncertainty and fear, leading to a decline in investor confidence and potentially causing a sell-off in the Indian stock market, as investors seek safer havens. Signup and view all the answers

Flashcards

Bombay Stock Exchange (BSE)

Asia's oldest stock exchange, established in 1875.

National Stock Exchange (NSE)

India's largest stock exchange by total and average daily turnover, established in 1992.

S&P BSE Sensex

The free-float market-weighted stock market index of 30 well-established companies on the BSE.

NIFTY 50

NSE's benchmark stock market index of 50 of the largest Indian companies, weighted by free-float market capitalization.