Although the US Federal Reserves latest policy rhetoric suggested it would still rely on economic data before raising interest rates, experts anticipate tightening to begin in the middle of 2015. Apart from an impending end to US monetary stimulus, worries over a slowdown in economic growth in the euro zone and Japan have spooked global investors, resulting in a steep correction in developed markets from the US and UK to the euro zone. Even as deflationary pressures in these economies could lead to lax monetary policies going ahead, the MSCI World index representing such DMs has lost about 9% from its September highs. For the year so far, the index has lost about 4% of its value.
Not surprisingly, the emerging market pack (MSCI EM), sensitive to the fickleness of global fund flows, saw a sharper 11% decline since early September. After the latest US Fed meet in September, FIIs have collectively sold $8.4 billion worth of shares in eight EMs for which fund flow data are provided by Bloomberg including India, Indonesia, South Korea and Brazil. With commodity prices falling, the Indian market has performed relatively better; it has lost about 4% since last month.