Indian markets resilient to absorb US Fed rate hike: FinMin

Our Bureau New Delhi | Updated on January 15, 2018

Shaktikanta Das, Economic Affairs Secretary

Fund industry hopes positive momentum in Indian equities will continue

The Finance Ministry has said Indian markets won’t be impacted by the 0.25 per cent increase in rates by the US Federal Reserve.

“Indian markets are well placed to absorb the US Fed rate hike. Gradual approach in future increases augurs well for emerging markets,” Economic Affairs Secretary Shaktikanta Das said. The view was also supported by Chief Economic Advisor Arvind Subramanian who said it was anticipated.

“What was interesting is that it’s been seen as a dovish rate hike... that’s why the dollar actually declined a little bit and US bonds also declined,” he said, adding that accordingly, it would have little impact on the rupee and capital outflows.

“I think there should be very little volatility in the Indian markets... There’s been pressure on the rupee to strengthen and I think that might continue to some extent,” he explained.

Subramanian further said three rate hikes have already been factored in and India is well cushioned to absorb any future rate hike.

Manageable with growth

“A lot will depend on our own economy and what happens domestically. If we can keep up our stability, growth and everything, I think this is something that we should be able to manage without much discomfort,” he said. Rajesh Patwardhan, Chief Marketing Officer, LIC Mutual Fund, said the stock markets here had already “priced in” the US Fed rate hike. The Indian stock markets are benefiting from the treaty changes with Mauritius and Singapore that will kick in from April 1. Many FPIs are keen to utilise the “grandfathering” window available for investments made before March 31, Patwardhan told BusinessLine.

“Foreign portfolio investors who felt lost out are returning to equities while domestic institutions are subdued. The SIPs of retail investors continue to be robust. The strong verdict to BJP in Uttar Pradesh has also boosted sentiments in the equity market,” he said.

Annirudh Naha, Head of Equity, Avendus Wealth Management, held a similar view. He said that the market had already withstood a 25-bps hike and is building in a couple of more hikes without much trepidation.

Scope for EM money

“The market resilience is a reflection of India’s changed macro fundamentals. With the fiscal and current account deficit in a very manageable territory and inflation under control, India will continue to attract a lot of emerging market money,” he said.

Sampath Reddy, CIO-Bajaj Allianz Life Insurance, felt that Indian markets have largely been driven by domestic factors. Domestic investors have been key to flows in the past couple of years. The win by the BJP in the UP elections further added to the positive sentiments domestically.

Further, the third quarter earnings season went off well with lesser-than-feared impact of demonetisation on the earnings. These factors, combined with a stable rupee, have resulted in the benchmark Nifty 50 rallying by more than 15 per cent from the levels of sub-8,000 since mid-November to above 9,100 in mid-March.

Sanjay Kumar, CIO-PNB MetLife Insurance, said the 25-bps rate hike by the US Federal Reserve was widely expected, following the hawkish comments by Fed officials over the last one month. “The Fed’s stance bodes well for Indian equity markets where we expect the positive momentum to continue,” he said.

Key triggers

Going forward, recovery in corporate earnings, smooth implementation of GST and continuation of economic reforms are crucial triggers for equity markets, he said.

Published on March 16, 2017

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