Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Nifty Will Fall If This Long-Term Correlation Holds True

India’s equity benchmark Nifty has seen a direct relation with the rupee in the last five years.

The equity market moved in tandem with the currency during the period.

  • In late 2013, when the rupee started appreciating, the equity index started its uptrend.
  • In 2014-15, when the currency started weakening, Nifty declined from 9,000 to about 7,000 points.
  • In late 2016 after demonetisation, when the rupee strengthened from about 68 to 63 per dollar, Nifty rose from 7,900 to its all-time high of 11,130 in January 2018.

This year, there has been a divergence. The rupee has depreciated 7.6 percent so far in 2018 but Nifty rose 2.1 percent.

Does the long-term correlation suggest that Nifty is in for a correction?

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