<b>Devangshu Datta:</b> The rate effect and why equity market could fall

Indian bond market is small and rigidly controlled and can't be called free or efficient market

In an efficient economy, the bond market and the stock market should maintain an inverse relationship. The bond market is driven by interest yields, which are dependent on prevailing interest rates and on traders’ perceptions of future interest rates. 

When interest rates drop, the stock market should rise. This is because the safe return from debt drops. Given low risk-free returns, investors are more prepared to get into risky equity. Also, the real economy tends to respond positively to a lower cost of financing, driving up growth rates. 

Conversely when interest rates rise, the stock market tends to fall. Investors