Fed rate hike: The day after, its business as usual

Lokeshwarri S K BL Research Bureau | Updated on January 22, 2018


Stock markets are hardy perturbed by the Fed hiking its target funds rate by 0.25 per cent. While there was a sharp sell-off prior to the September FOMC meeting with all financial market throwing a classic tantrum to make Yellen postpone her decision, markets have shown considerable maturity in the run-up to the December meet. Well done Fed, for reading the markets’ psyche well.

The US indices, the Dow Jones Industrial Average and the S&P 500 had closed the Wednesday's session around 1.3 per cent higher, signalling that equity markets are pleased with the move. Asian markets have followed the lead of US markets with the Nikkei trading more than 2 per cent higher and the Hang Seng close to 1 per cent higher.

Given these positive cues, it is not surprising that Indian equity market has also opened on a positive note with both the Sensex and the Nifty currently in the green. But Indian investors appear more circumspect as indices are getting volatile after a positive open.

FII selling

This is not surprising given that Foreign Portfolio Investors have been net sellers in Indian equity market over the last two months. Worries over corporate borrowings in dollar turning more expensive, can be dragging down Indian equities.

The slowdown in earnings is another major factor that is currently cramping Indian equity markets. At 12-month trailing PE multiple of 20, the Sensex is still not cheap.

But with pick-up in earnings expected in the coming quarters due to the interest rate cuts by the RBI, relief in input costs due to fall in commodity prices and gradual improvement in industrial output, earnings could be set to turn the corner. And stock prices tend to react much ahead of the actual turnaround in the fundamentals.

Published on December 17, 2015

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