What The US Fed Rate Hike Means For The Indian Markets?

Following the US Fed's decision of an interest rate hike, US markets including the benchmark indices like the S&P 500, the Nadaq and the Bluechip Dow Jones indices cracked. Asian markets are trading lower including the Korean Kospi, the Australia's S&P ASX 200, the Japanese Nikkei and the Topix, which slid 1.07%.

Indian markets too are likely to follow Asian peers lower in trade today, as global markets mostly move in tandem after a big event. While markets were anticipating a 25 basis points, the fall across the US markets came largely from comments by US Treasury Secretary, Yellen which stated that there no plans to insure bank deposits. So, markets have not really reacted to the Fed decision, but, more so to the comments by Yellen.

In any case, when the handover from Wall Street is weak, India tends to fall, especially if there is a major fall. The SGX Nifty is suggesting a cut of 50 points, which means markets could open lower for the Nifty in that range. We anticipate a cut of around 100 points on the Nifty in opening trade.
For Indian markets in the medium term, there could be some outflow of money from Foreign Portfolio Investors as interest rates in the US rise. This might lead to some selling pressure in Indian stocks, though, we believe that the huge amount of cash that mutual funds are sitting on, will protect any sharp downside.

In fact, the anticipation of a 25 basis points was always on. "We maintain the Fed will go ahead with a 25bps hike, with enough dispersion in the dot plot. Powell will likely distinguish between the inflation fight and supporting financial stability via regulatory tools, in the absence of any systemic event. That said, the FOMC might reckon that speed kills and contagions are difficult to manage. Hence, forward guidance could be hazy despite a likely unchanged 2023 median rate" the brokerage had said.