How Interest Rates Affect The Stock Market ?

The interest rates generally will have inverse effect on the stock market i.e. if the interest rates comes down stock market will go up and vice versa.

The central banks decide the interst rate as part of monetary policy , to maintain inflantation and growth .

Reducing interest rates will have following effects ...

1) Increase in liquidity in the system , and increase in inflantation also as too much liquidity chasing few assets like real estate or equity .
2) Companies earning will increase as the interest burden will come down(considering most of the companies will have considerable part of debt in their books).
3) Companies can look for expansion as they can raise debt with less interest,thus potential increase in earnings.

In the same way increase in interest will control inflantaion and hamper the growth of the companies thus the growth of the country.

Apart from this increase in interest will potentially appritiate the currency too.

Banking , Auto and Real estate are the sectors which are directly effected by interest rates and export sensitives like IT and Textile are indirectly effected by the interest rates.

While allocating capital we should take trend of interest rates into account.

RK