[POLL][2026-10-27]Where will NIFTY close this month's expiry?

BB789 · October 4, 2026, 1:49pm

While I agree inflation inflates nominal returns, I don’t agree the same with interest rates. Interest rate increases are an response to inflation and is done to combat inflation. Climbing interest rates are a clear damper on equity returns:

GSEC 10 Year Yield

Then it may impact Indian equities. There are three major hurdles to think about:

Opportunity Cost: When 10-year G-Sec yields rise, meaning the risk-free return on sovereign debt increases, fixed-income assets become more attractive. Investors may reallocate capital away from riskier equities, such as the Nifty 50, and into debt.

Cost of Capital & Valuations: Higher G-Sec yields push up the overall interest-rate structure in the economy. This increases the cost of capital for companies and raises the discount rate used to value future earnings. As a result, equity P/E multiples tend to compress, putting pressure on Nifty valuations.

Foreign Institutional Investor (FII) Flows: When Indian G-Sec yields rise relative to global yields, or when global bond yields spike, FIIs may reduce their exposure to emerging-market equities such as the Nifty and move capital into safer debt instruments.

When a rate cycle starts moving upward, it can usually put pressure on the equity market. I think debt and equity are generally inversely related, although the relationship is not always direct or consistent.

Stable inflation are positive on the market. I also agree clear runway inflation or currency depreciation may inflate market during desperation. But slowly climbing interest rates are a negative. I think you know discounting cash flow with risk free rate and the math is clear on it: if yield increases, it discounts future value of earnings. In addition higher interest rate is a damper on corporate credit and therefore growth, especially companies with debt - which affect real returns and offset any inflation gains to reduce nominal return.