INFLATION AFFECT THE STOCK MARKET, HOW?

What is inflation?
in simple terms inflation mean persistent rise in general price level.
normally inflation creates due to excess supply of money in the market. whenever this situation arise in India central bank (RBI) raise the interest rate.

this interest rate is the rate at which commercial bank borrow the money from reserve bank of India. if commercial bank get money at high rate of interest of course it will affect their margin so they also will charge high rate of interest to their borrowers(public and corporate sector). apart from this RBI may increase the CRR and SLR rate. due to this monitory policy corporate sector and companies will discourage to take loan from commercial bank and they will borrow lees fund to avoid interest burden.
of course this will affect the industry's growth rate because they will face working capital shortage and will spent less on their capital expenditure.

it will create the unemployment situation and due to inflation the purchasing power of people will decrease and they will spend less money, theofor turnover of companies will be less just because of less demand.

companies profit will increase and at the end of the final year may be they will not pay any dividend to stockholders. if this situation is continue then no body want to hold share and they will sale in the market.
now this point in stock market the demand of share will be less beacuse many people are saling their stock. supply will be more and thorfor price will be fall. in this way share market may fall.

Brijesh Mishra
brijeshmishra49@gmail.com