Will Indian Stock Market Face More Decline as China Infuses $70 Billion? Here’s What Experts Say - Read Now 

India's stock market will be shocked again as China has already announced a mammoth cash infusion of $70 billion, which will draw foreign investors into the Chinese market. This move will come from the PBOC as it attempts to stabilize its economy and develop domestic demand by infusing massive liquidity into the money market by 500 billion yuan that amounts to $70 billion. China will seem more attractive to investors, so India's stock market shall be affected.

China's Liquidity Boost: What It Means for Global Markets

The PBOC facilitated this liquidity through its novel long-term cash flow instrument, the six-month outright reverse repo agreement, meant to keep cash in the money supply and support the liquidity of Chinese banks, therefore maintaining long-term stability of finances. The novel instrument will provide six-months cash as opposed to current seven-day reverse repos so that banks will keep expanded liquidity to be productive when lending.

According to Becky Liu, Head of China Macro Strategy at Standard Chartered, this move by the PBOC will strengthen liquidity in the banking sector and ease repayment pressures on banks. By infusing liquidity, the Chinese central bank aims to support an economy weakened by recent declines in property markets and reduced consumer spending.

This is in accordance with the overall policy of economic support by the PBOC. The PBOC also purchased government bonds worth 200 billion yuan from the open market in October, which is a part of its stimulus policy and that provided adequate liquidity to sustain the banking system stable.

Implication for Indian Stock Market

There is a likelihood that funds coming in China might drain them away from India's stocks. Indian stock market saw an immense loss in October at 6 per cent. That simply was because of foreign investors stepping out of their position and selling stocks. This brought a sell-off and consumed a whopping Rs 20 lakh crores Indian investor monies, exemplifying the gigantic influence of foreign investments on the market.

Experts warn that if the global investors keep shifting funds to China, the selling pressure in India's stock market will continue through November. Since foreign portfolio investors find value in supportive policies in China, the Indian market will face further volatility and decline.

How China's Infusion May Impact India's Foreign Investments

That's basically a 25-basis-point cut in the reserve requirement ratio for the banks," said Mizuho Securities economist Serena Zhou. It is trying to make the financial system more efficient and aligned to international standards, perhaps attracting more investors.

That being said, the economic decisions China makes may continue to decrease India's appeal to foreign investors. This also implies that PBOC policies will seek to stabilize a financial environment that is stable yet attractive enough for global investors.

Experts say that Indian investors must prepare themselves for probable Indian market volatility with the stabilization of China's liquidity as well as economic stability.
Indian market conditions may further stabilize if Indian investors hedge out foreign outflows but still, caution is paramount.

With China's proactive approach for economic stimulus, the variability in Indian markets is going to be high if foreign investments continue shifting eastwards. A keen eye on market scenarios and assessment of varied investment opportunities in the backdrops of changing global trends in capital flows are indispensable for investors in India.

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