Lack of surprises in the Federal Open Market Committee (FOMC) meeting
outcome did not drag Indian stock markets on Thursday despite an
interest rate hike by the US central bank.
The US Federal Reserve
officials, meeting for the first time under chairman Jerome Powell,
raised the benchmark lending rate a quarter-point. Policy makers
continued to project a total of three interest rate hikes this year.
In
the forecasts, Fed officials projected a median federal funds rate of
2.9% by the end of 2019, implying three rate hikes next year, compared
with two moves seen in the last round of forecasts in December.
Higher
interest rates in the US generally lead to outflow of foreign funds
from emerging markets considered to be riskier assets.
Analysts
said that more than the interest rates hike in the US, trade war treats
lurking over global markets may have a deeper impact on the way foreign
investors allocate funds into emerging markets including India.
According to a Bloomberg
report, US President Donald Trump is set to announce about $50 billion
of tariffs against China over intellectual-property violations. It will
be Trump’s first trade action directly aimed at China, which he has
blamed for the hollowing out of the American manufacturing sector and
the loss of US jobs.
Pankaj Pandey, research head at ICICI
Securities, said that the bigger worry would be trade war which may
derail or curtail the over-all global growth. “That would be a bigger
challenge for global investors which will impact most of the markets
including India. Otherwise, I don’t think Fed rates hike will hurt FII
flows to India,” he said.
VK Sharma, head PCG and Capital Market
Strategy at HDFC Securities, said that the near term implications of the
Fed policy are less hawkish than what the markets had pencilled in.
“History has shown that unless the real interest rates rise beyond 2.5%
the markets can very well take these hikes into stride. So we are not
worried by the three hikes in 2019,” Sharma added.
According to
Pandey, the markets are likely to stay in a range now. “Treasury income
for banks will take a knock while asset resolution may take some more
time. As a result, banking firms which contributes 40% to the index will
hit overall earnings growth. Corporate earnings will appear flattish
which would mean the markets will remain range bound. Combined to it,
political anxiety will keep markets in tight range,” he added.
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