As inflation rises, central banks throughout the world may contemplate raising interest rates. Higher interest rates elevate borrowing costs and discourage investment. With rising inflation and interest rates, many businesses would face higher production costs (for example, loan repayments), resulting in lower profitability. All of this will result in slower-than-expected economic growth and, as a result, lower share dividends, reducing stock demand.
Second, rising inflation raises uncertainty and deters businesses from making riskier investment decisions. This uncertainty may delay economic growth and reduce corporate profitability, making equities less desirable. During times of uncertainty, investors may withdraw from equities and allocate a bigger amount of their portfolio to safer investments.
During the hyperinflationary period, however, investors who purchased shares in enterprises with physical assets were able to keep their true worth of investment, whilst those who left their money in the bank saw the value of their savings wiped out by inflation. As a result, it will be a difficult scenario for the stock markets in the short term, but it will be beneficial in the long run.
The technical levels for the SGX NIFTY are as follows:
The strategy is to purchase the dips for the very short term as it moves within the ascending channel and is predicted to reach the resistance zone between 16906 and 17407.
The support zone in the lower period extends around 16190-16284 and we should expect a rebound higher from here.
Based on the daily timescale, once it reaches the previously indicated zone of resistance, we may expect another push lower into the support zone spanning from 15184 to 14291.