The much-awaited U.S Federal Reserve rate hike and the signals are here. As expected, the Fed has hiked rates by 75 basis points and hinted at the possibility of a slower pace without sounding too dovish.
Fed Chair Jerome Powell made it clear that it’s premature to talk about pausing rate hikes. But clearly, the Fed is less hawkish, not rigid and open to consider the impact of past rate hikes and the lag effect.
U.S. markets initially cheered, but later gave up the gains in a very volatile session.
So, what does this mean for Indian markets when trading resumes? The impact on the Indian market should be assessed in the backdrop of the strong rally over the last one month.
The market opening will depend on how Asia opens and how Dow Futures trade. But either way, it could be a very volatile session. The movement could be sideways as the big bets are reassessed in the light of the Fed Chair trying to sound dovish but ending up being hawkish.
Even if the bulls try to latch on to some positive hints from his speech, the gains may not last long, as seen in the sharp cuts in U.S. markets after Powell’s tone changed.
Indian markets, which have seen a strong run over the last couple of months, came in kissing distance of their all-time high levels. The key indices are short of their all-time high by around 1.4%.
Banking stocks have been the key drivers for the Indian markets so far. The Bank Nifty’s relentless run has taken it closer to its all-time high of 41,840, even though the HDFC twins were laggards.
It is this rally that could be stopped in the tracks. Bulls will pause and ask the following questions:
Are Indian markets relatively overvalued?
Will FIIs continue to be net buyers?
Are positives priced in for Indian markets?
For answers to these and many more questions, stay tuned to BQ Prime.