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Decreasing Interest Rates Attract More Investments Towards Stock Market

The report discusses the relationship between decreasing interest rates and increased investments in the stock market, highlighting how lower rates encourage consumer spending and investment in equities. It examines the role of major stock exchanges in India, the impact of repo rates on economic growth, and provides a comparative analysis of interest rates and stock market performance in India and the U.S. The findings suggest that as savings interest rates fall, individuals are more likely to invest in the stock market, particularly when rates drop below a certain threshold.

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Debajit Das
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22 views21 pages

Decreasing Interest Rates Attract More Investments Towards Stock Market

The report discusses the relationship between decreasing interest rates and increased investments in the stock market, highlighting how lower rates encourage consumer spending and investment in equities. It examines the role of major stock exchanges in India, the impact of repo rates on economic growth, and provides a comparative analysis of interest rates and stock market performance in India and the U.S. The findings suggest that as savings interest rates fall, individuals are more likely to invest in the stock market, particularly when rates drop below a certain threshold.

Uploaded by

Debajit Das
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Decreasing Interest

Rates Attract More


Investments Towards
Stock Market
Sabyasachi Ghosal (0090) | Debajit Das (0109) | Soham Bandyopadhyay (0113) | Ronit
Majumdar (0118)
Table of Contents

What this report covers • Stock Exchange


• Major Exchange
• Mutual Fund
• Reasons for Decreasing Interest Rate
• Relation Between Interest Rate & Stock
Market
• Brief Case Study
• Comparison Report
 The stock exchange in India serves as a
market where financial instruments
like stocks, bonds and commodities are

Stock traded.

 It is a platform where buyers and sellers


Exchange come together to trade financial tools
during specific hours of any business day
while adhering to SEBI’s well-defined
guidelines.
Major  Bombay Stock Exchange (BSE): This was
established in 1875 in Mumbai at Dalal Street.

Exchanges
It renowned as the oldest stock exchange not
just in Asia and is the ‘World’s 10th largest
Stock Exchange’.

 National Stock Exchange (NSE): The NSE was


established in 1992 in Mumbai and is
accredited as the pioneer among the
demutualised electronic stock
exchange markets in India.
Mutual
Fund It is a trust that collects money from
several number of investors. Then, it
invests the money in equities, bonds,
money market instruments and/or other
securities. The income/gains generated
from this collective investment is
distributed proportionately amongst the
investors.
Types

 Equity Mutual Fund

 Debt Mutual Fund

 Hybrid Mutual Fund


 Repo rates are used, as an instrument, by
the monetary authorities to control

Repo inflation. When inflation rises, the RBI


increases repo rates to deter banks from
borrowing funds from RBI.
Rate  The central bank usually does the opposite
when there is a fall in inflation.
Reasons for
Decreasing  Banks decrease the interest rates to
stimulate growth in the economy and
Interest as a result of that positively affect the
growth in the stock market.

Rates  A fall in interest rates encourages


consumers to be more open to
spending more.
Relation between Interest Rate and Stock Market
Stock exchange and interest rate are The relationship between interest rates
two crucial factors of the economic and the stock market is fairly indirect,
growth of a country. The impacts of the two tend to move in opposite
interest rates on the stock exchange directions, when RBI cuts interest rates,
provide important implications for it causes the stock market to go up and
monitory policy, risk management when the RBI raises interest rates, it
practices, financial securities valuation, causes the stock market as a whole to
and government policy towards go down.
financial markets.
A Brief Study on how the
Savings Interest Rate
Affects Investments in
the Stock Market
 The only parameter which we are using to
calculate the change in investments in the
stock market is the growth in the demat
accounts or rather opening of new demat
accounts.

Assumption  Secondly, any change in the rate of savings

s Behind interest rate in a particular year will affect the


investments in the stock market in the next
year or in the years to follow.

Our Study  Although, change of interest rate is the primary


reason for change in the investment pattern in
the stock market but their may be other
underlying factors as well.
Graphical Representation of the Study

Savings Account Interest Rate


7.00%

6.00% 6.03%

5.00% 5.04%

4.69%
4.54%
4.45%
4.17%
4.00% 3.98% 3.99% 3.94%
3.85%
3.66% 3.65%

3.00%

2.00%

1.00%

0.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Inference

 From the above observations, it could be noted that the savings interest rates
definitely affect the investment pattern in the stock market and that too in an inverse
proportion.

 Individuals or households generally put the money that they save in a savings bank
account with an intention to get some sought of return even at a lower rate of
interest because they consider this mode safer than investing in the stock markets
with high returns.
But when the interest rate
falls below 3.5% to 3%, they
are left with no other
options than to invest a
reasonable part of their
money at the stock market..
Comparison Report
Showing how decreasing interest rates of savings bank account affecting Indian Stock Market and US Stock Mark

The effective federal funds rate since 1954

The Fed lowers interest rates in order to stimulate


economic growth, as lower financing costs can encourage
borrowing and investing. However, when rates are too
low, they can spur excessive growth and subsequent
inflation, reducing purchasing power and undermining
the sustainability of the economic expansion. When there
is too much growth, the Fed can then raise interest rates
in order to slow inflation and return growth to more
sustainable levels
How Interest Rates Affect the U.S. Stock Market

Investors have a wide variety of investment options. When


comparing the average dividend yield on a blue-chip stock to the
interest rate on a Certificate of Deposit (CD) or the yield on a U.S.
Treasury Bonds (T-bonds), investors will often choose the option
that provides the highest rate of return. The current federal funds
rate tends to determine how investors will invest their money, as
the returns on both CDs and T-bonds are affected by this rate.
The average interest rate on savings accounts currently stands at
0.05%.
How interest rates affect stock market in India?

Interest rates are set by central banks all over the world. In India, Reserve Bank of India sets
the repo rate. This is the rate at which RBI lends to commercial banks. This becomes the
benchmark rate. Commercial banks decide borrowing rates for businesses and people like us
based on this benchmark rate. On 29 January 2013, RBI had conducted its quarterly review
of monetary policy. According to a survey of 10 economists polled by The Economic Times, a
business daily, it is expected that RBI would cut repo rates by 0.25 per cent to 7.75 per cent.
So, there are two out of many factors that affects the stock prises currently are as follows:
 Saving interest rate
 Inflation
Savings Account with Highest Interest Rates

There are a number of public sector as well as private sector banks


in India. Although each bank, generally has a different range of
interest rate for savings accounts, the rates usually range from
2.70% p.a. to 6.25% p.a.
There are many larger number of banks in India which offer
customers the facility of opening Savings Accounts some of the
major banks to do so are listed as follows:
Saving Account Interest Rate Comparison between India and United States of America over the years

7.5

6.5

5.5
Saving Interest rates over the years

4.5

3.5

2.5

1.5

0.5

15 days to 45 days 46 days to 90 days 91 days to 180 days 181 days to less than 1 year 1 year to less than 2 years 2 year to less than 3 3 year to less than 5 years 5 years to less than 8 years 8 years and up to 10 years
India Rates % 2.75 3.75 5 5.75 6.25 6.75 7 7.25 7.5
US Rates % 0.3 0.3 0.45 0.5 0.95 1.99 2.28 2.97 3.45

Time Period

India Rates % US Rates %


Net cash inflow/outflow in equity funds both in Indian Stock Market as
well as in US Stock Market
THANK YOU!

‘Investing Should be More Like Watching

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