US Fed Hike: Expect Indian Markets To Be Calm

‘I don’t see any major setback for the Indian markets post the US Fed event.’

With the US consumer price inflation hitting 8.6 per cent in May 2022, a 40-year record, riding on high crude and food prices the market is expecting the US Federal Reserve to hike its policy rate by at least 50 basis points (0.5 per cent) or an ‘aggressive’ 75 basis points (0.75 per cent).

All eyes will be on US Fed Chairman Jerome Powell as global equity market participants await Fed commentary with bated breath.

Deven Choksey of K R Choksey speaks with Prasanna D Zore/Rediff.com about the possible outcome of a 75 basis point hike in the US Fed’s policy rates and why it will not have a major impact on Indian equity markets.

Going into the Fed event what are the key concerns looming over the Indian economy and equity markets?

The US Fed is tightening monetary supply, and that is what they should do to control the inflation there, and they are doing their job well.

What is happening in the US economy and what the Fed is doing to control it is already factored into by the Indian equity market.

Fortunately, global commodity prices have started cooling off and that should give a breather to the US Fed also. But they can’t relax and will increase the rate of interest to control the supply of money.

There are no concerns per se.

How will the Indian markets react to a 75 basis-point hike in US Fed rates? How do you see the event panning out for Indian markets?

I think the Indian markets will be calm and sober. Unless, the FIIs keep selling aggressively after the event then there should not be any undue worry for Indian equity markets.

The FII selloff and the Fed rate hike are already factored in. I don’t see any major setback for the Indian markets post the US Fed event.

Would high crude oil prices and a weakening rupee act like a double whammy for the Indian economy?

In my opinion, crude oil prices cannot sustain at such high prices. If they sustain, then they will meet the same fate as the other commodities (which have started cooling off now). So, crude oil prices shall behave and behave well.

While it is expected that the US Fed will increase the rates by 75 basis points, are you expecting any surprises?

Though the US consumer retail print was quite high and surprising I think the US Fed rate hike is already feared and factored in. We are not heading for any major surprises anymore.

What are the key points to watch out for in the US Fed’s commentary?

How soon and how fast do they want to tighten the excess liquidity in the system will be keenly watched out for by the markets.

If they decide to suck out the liquidity sooner than anticipated, then that will be an interesting event to watch out for.

Do you see the RBI going for more rate hikes after increasing the repo rate twice by almost 90 basis points?

The RBI still has headroom for another 50-60 basis points.

There are concerns of a looming recession staring global economy. What is your take on the ‘R’ word?

Any recession at this point in time will be called moderation in prices and not recession per se.

The second important aspect is recession cannot last for a longer period of time. Any such recession will not last more than 12 months.

Thirdly, easy money will have to be taken out of the system if inflation has to be brought under control. And even if this (sucking out of excess liquidity) results in small amount of demand slowdown then it will be easily absorbed (by global economies).

How will the Indian economy get hit in case the global economy slides into recession?

It will definitely have a domino effect. If the global economy slows down then it can hit you in any corner.

What advice would you have for retail investors who invest on their own as well as participate in the Indian growth story via MF SIPs?

Most importantly, they should seek professional advice before putting their money into equities or mutual funds. They can continue with their SIPs, but an opinion of a professional advisor must be sought given the present circumstances.

Will FIIs and FPIs bring in more money dollars to invest in the India growth story taking advantage of the weaker rupee or pull money out of India to earn higher dollar returns and safety?

There is a greater possibility of FIIs evaluating this option in the second part of this year. The first half of this financial year will be a wash out anyway.

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