The equity benchmark indices Sensex and Nifty opened on a firm note after the US Fed hiked interest rates by 25 basis points for the third time this year. “This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages,” Chair Janet Yellen told reporters Wednesday in Washington following the decision. Notably, the central bank has also projected three more rate hikes for 2018. “The most important takeaway from the December FOMC meeting is that even though policy makers are becoming more bullish on economic prospects, they are not shifting to a more hawkish policy stance. An extended inflation soft patch is giving the Powell-Fed a free pass to continue along Janet Yellen’s gradualist path toward policy normalization,” Bloomberg reported its economists Carl Riccadonna and Yelena Shulyatyeva as saying. With the Fed hike behind us, we take a look at three key events which could be crucial to decide the course of markets before we move on to 2018.
Gujarat election and outcome for both Gujarat and Himachal Pradesh
Many top markets experts and analysts alike expect the outcome of the Gujarat and Himachal Pradesh election, due on December 18, will impact the equity markets. In an interview to ET Now, Sunil Singhania of Reliance Capital said that the stock markets could be impacted if the outcome is different than the consensus expectations. “We had some apprehensions and some correction last year predominantly because of the same event and last two-three days we are seeing some optimism again based on the same event. Our view is that these events are important in the near term but last three-four years’ experience has been that these events cause markets to move in a direction only for a very near term,” he told the channel.
Winter Session of Parliament
All eyes will be on the government’s actions in the Winter Session of Parliament which starts tomorrow. Notably, the National Democratic Alliance (NDA) government has convened an all-party meeting for today, ahead of the session. “With this being the last Budget of the government, it is important to see whether government will seek to consolidate fiscal deficit while boosting growth via encouraging public capex or will it go for populist measures. Apr-Sep deficit stood at 91.3% of the budget estimates and rising fiscal deficit at this stage could continue to exacerbate inflation and current account deficit. We believe that in the coming months, government will be looking for revenues to meet the deficit target of 3.2%,” Kotak Securities said in a recent report.
After retail inflation surged to a 15 month high of 4.88% in November, much higher than RBI’s medium-term target of 4%, a rate-cut by the central bank in early 2018 looks highly unlikely. In its bi-monthly policy review held last week, the RBI kept key policy rates unchanged, as the central bank’s concerns over inflation rising through the year seem to be coming true. Notably, RBI has raised its expected inflation estimate on the entire band by ten basis points to 4.3%-4.7% in Q3 and Q4 from 4.2% to 4.6% earlier. However, experts point out that this hawkish stance of the central bank may hurt India’s growth.