What Fed’s new game plan means for Indian stock markets

Indian stock markets fell today, tracking declines in Asian peers after US Federal Reserve chairman Jerome Powell said overnight that the US central bank would raise interest rates more than previously expected, cutting risk appetite. The Fed raised rates for the fourth time in a row by 75 basis points, taking it to 4%, the highest level since 2008.

The U.S. stock market also fell sharply overnight after a brief rally following the Fed’s policy announcement that signaled a smaller rate hike ahead and signaled that monetary policy was acting late. Markets took this as a bearish signal. But Chairman Jerome Powell said it was “too soon” to consider a freeze and that the peak of rates would be higher than previously expected.

“The dual message leaves open the possibility that the Fed may raise rates slightly in the future, ending its streak of three-quarters of a percent hike in December in favor of more moderate hikes. Half a percentage point, however. leaving room for policymakers to keep rates higher if inflation does not start to ease,” said Anand Varadarajan, Managing Director, Asit C Mehta Financial Services Ltd.

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At 9:45 am, the Sensex was marginally lower at 60,858, paring early losses while the Nifty held its 18,000 levels.

“The Fed’s comments after the expected 75 bp rate hike, especially Jay Powell’s statement that the terminal rate is likely to be higher than before, disappointed the markets which led to a sell-off in the US markets. But it is important to note that when Asked about a soft rate hike, he said, “that time is coming and it may come soon at the next meeting or the one after that.” Therefore, it is possible that the markets will come back again because the economy continues to be strong. and unemployment is at record lows indicating that a US recession is not imminent,” said VK Vijayakumar, Head of Investment Strategy at Geojit Financial Services.

“India’s performance should continue as key indicators such as credit growth, capital spending and auto sales point to strong economic recovery,” he added.

Institutional buying can also support Indian markets. “FPI purchase 12610 crore in the last 5 trading sessions could support the market at lower levels. Large banks, capital goods and the premium auto segment are being bought at a discount,” said Vijayakumar of Geojit Financial Services.

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Girish Sodani, Head of Equity Markets at Swastika Investmart, said the RBI is also expected to raise interest rates in its December meeting but its impact on stocks could be limited. “The RBI is also moving towards a rate hike, but we see the impact on a much shorter term, the market is still on a stronger footing and needs to focus on stock features,” he added.

Anand James, chief market strategist at Geojit Financial Services, said some dispersion pattern was seen in Wednesday’s trade at 18070/50 level for Nifty. Nifty has support in the 17960/17900 zone while the next support level stands at 17760/17720.

Today’s rupee-US dollar rate

The rupee today fell to 82.85 against the US dollar compared to the previous close of 82.80.

“On the domestic front, the overnight global rout in financial markets may weigh on the rupee. It has so far traded slightly stronger than its all-time low, due to the resumption of FII declines that have only lasted for two sessions. November brought in close to 11000 crore as sentiments improved across the board. Well, the sustainability of the same will depend on how RBI conducts policy amid an aggressive Fed. Today RBI will hold its unscheduled MPC meeting. do, which is widely expected to be a non-event and RBI Governor Das said a letter to be sent to the government will not be made public after the special meeting on November 3 as the bank does not have the authority to release it,” said Amit Pabari, MD of CR Forex Advisors.

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“Today we saw that RBI may intervene in the spot market to control volatility. Overall, we expect the USDINR pair to trade in a range of 82.00 to 83.20 higher levels and a break on either side will determine another course,” he added.

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