Adding to what @vml has said above, traditionally Indian stock markets have risen during a rate hike cycle. You can see this in your chart during the period 2005-08 and later during 2013-15. Post 2015, markets fell despite falling interest rates. During the rate hike cycle from 2009-12, markets first rose and then fell, to end flat. On longer period durations, markets have risen more often than not during rate hikes. The article given below quotes an NSE study which says that markets have given a median return of 24.6 % across eight rate hike cycles.
https://www.forbes.com/advisor/in/investing/how-interest-rates-affect-stock-market/
According to me, the reason for this (apparent anomaly) is that our markets have traditionally been dominated by FII flows, which are sensitive to currency risk, especially when investing in emerging markets. Rate hikes strengthen the local currency and provide comfort to foreign money to come in.
The current rate hike cycle is more an exception to this, as it has coincided with rate hikes globally, leading to fund outflows. Thus, we should avoid generalizations since every situation is unique and market movements are influenced by several factors besides interest rates.
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