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Will US Fed hike rates or not? How Indian markets will react

According to experts, domestic equity markets will not see much of an impact due to its strong macro-economic fundamentals and may rise after the US Fed meet.

By: | Updated: September 21, 2016 4:04 PM
BSE Sensex NSE Nifty gail shares According to experts, domestic equity markets will not see much of an impact due to its strong macro-economic fundamentals and may rise after the US Fed meet. (Photo: Reuters)

After Bank of Japan, stock markets all over the world are looking to the outcome of the US Federal Reserve meeting, scheduled later on Wednesday. Domestic equity markets have remained lacklustre in the past few trading sessions in the absence of any major triggers amid Bank of Japan and US Federal Reserve meet. The BSE Sensex and NSE Nifty opened on a cautious note on Wednesday but later rallied in late morning trade on buying in consumer durables, telecom, metal, realty, auto, oil&gas and financial sectors. However, they gave up on the gains in the last leg of trading. Sensex ended 15.78 points down at 28,507.42, while NSE Nifty gained 1.25 points to close at 8,777.15

Value-buying and short-covering driven by buying activity amid mixed Asian cues as Bank of Japan (BOJ) kept rates steady while introducing an interest-rate target for 10-year government bonds to step up its fight against deflation also helped the markets. The BOJ said it would continue to buy long-term government bonds, but abandoned its base money target and instead set a ‘yield curve control’ under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.

It is widely expected that US Federal Reserve will keep interest rates unchanged on Wednesday citing tepid inflation and weak economic data. However, investors in America and world over will look at cues on further hike in rate of interest by the end of the year. The US Fed had last gone for an interest rate hike in December 2015 when it raised raised its benchmark overnight interest rate to a range of 0.25 per cent to 0.50 per cent, the first hike in nearly a decade. This year has not witnessed any rate hike till now.

The Fed’s rate-setting committee will release its policy statement around 11.30 pm (IST), while its chair Janet Yellen is scheduled to hold her quarterly press conference half an hour later.

According to experts, domestic equity markets will not see much of an impact due to its strong macro-economic fundamentals and may rise after the US Fed meet. G Chokkalingam, Founder, Equinomics Research & Advisory said,” Like Bank of Japan, US Fed also will not hike rates this time. It would be worried about repercussions on rest of world economy.” He further added that Indian stock markets may rise post US Federal Reserve meeting.

Ajay Bodke, chief executive officer & chief portfolio manager: PMS, Prabhudas Lilladher said, “There are fears that a rate increase by the Fed could lead to large outflows from emerging markets (EM) and subsequent wobble in risk-assets could weaken emerging market currencies, lead to spike in EM bond yields and drop in EM equities. India would be able to weather any such storm due to its strong macro-economic fundamentals: government’s commitment to medium-term fiscal consolidation plan, benign outlook in global commodity prices (crude in particular), likely current account surplus in FY16, stable currency, record forex reserves, falling consumer inflation on the back of bountiful monsoons, one of the highest GDP growth rates in the world, stable and progressive political regime at the Centre.”

Bodke is bullish on domestic markets and said that such correction induced by external factors should be used as an opportunity to buy Indian equities with a medium-term perspective.

India’s growth story has impressed many analysts. Edelweiss Securities’ President and CEO Vikas Khemani recently had said that Sensex could touch 75,000 in next 5 years. Last week, JP Morgan Chase & Co Adrian Mowat had also said that Nifty could touch 10,000 by December-end.

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