From recent interactions with the market participants, I conclude that the recent ~8% rally in the benchmark Nifty50 has materially obliterated the fear of major correction in stock prices from their minds. Of course, most of them are conscious of the factors like financial sector crisis in the developed markets, especially the US; recession like conditions in some of the major global economies; and high real rates impeding the global growth that may have serious repercussions for the Indian economy and businesses. They also seem to be mostly ignoring the unusual weather conditions and possibility of a serious slowdown in exports, and acceleration in FPI outflows if the credit conditions continue to tighten further in the developed economies.
It may be pertinent to note that banks in the US are tightening credit in response to fed rate hikes, economic uncertainty, and money supply contraction. Historically this has led to a marked slowdown in growth, deflation, rise in employment; large number of bankruptcies and significant sell off in global risk assets.
Average 30yr fixed rate mortgage in the US is at ~6.5% and 5yr auto loans rates at ~7.5% are close to the highest in two decades. Might be this time it is different, but it would be imprudent to completely ignore the risk.
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