The Federal Reserve’s expected decision to raise the interest rates by 0.25% on Thursday did not unsettle the Indian stock markets to the extent expected. The Sensex — the pulse of the Bombay stock market — in fact, closed the day higher by about 300 points. The markets however, experienced some volatility on Friday. Nonetheless, “our markets have put up a brave front indicating the faith of investors in India’s strong fundamentals,” says Deepak Kapoor, financial analyst, ADC Legal. After confronting two negative news — the Fed’s rate hike and the deferment of the GST bill till June next year — which could have created a great deal of anxiety among investors, the Indian markets were at least able to stay firm. By absorbing the twin negatives, the Indian markets indicate that they are now strengthening their foundations which will hopefully culminate in a good climb-up in January next year. Kapoor is confident that among emerging economies, India, with its promising growth potential, would continue to be the bright spot.
The American Central Bank’s decision to hike the interest rate is based on the American economic recovery. This decision was expected to create turmoil in the emerging markets with investors pulling out their money from developing economies to park it safely in America. The Fed had also indicated that it would take into account the economic development elsewhere in other important economies before actually going in for further interest rate hike. Experts feel that such accommodation by the Fed would give stock markets in emerging economies the needed time to brace themselves for further hikes. Moreover, the economic stimulus being given by the rest of the world would continue to support Indian markets and the rupee. “The Indian rupee is expected to trade between 67 to 69 range against the dollar next year,” says Murthy Nagarajan, head fixed income, Quantum AMC.
Moreover, the recovery in the US market would be good news for India’s export sector with Indian IT companies experiencing a turnaround. The slowdown in much of the developed world had affected the earnings of Indian IT companies, most of which have a majority of their clients in America and Europe.
But many analysts advise investors to be cautious. Many fear volatility hitting Indian market as well. They say that Sensex losing about 300 points on Friday is an indication of expected volatility. But experts are also confident that any volatility in the Indian markets is expected to be short lived. “Going forward, Indian markets are expected to take a decisive turn and hopefully a better one,” says Kapoor.