US Fed to dictate trend in D-Street

US Fed to dictate trend in D-Street

FPJ BureauUpdated: Friday, May 31, 2019, 08:04 PM IST
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Selling by FIIs in anticipation of a rate hike by the US Federal Reserve is likely to keep any recovery in equities under check. Foreign investors have pulled out nearly Rs 5,500 crore this month so far

New Delhi : Trading in the stock market this week would be influenced by inflation data and outcome of the US Federal Open Market Committee’s two-day meeting that ends on Wednesday, with stocks likely to witness volatility in the near term, say experts.

Selling by foreign institutional investors in December in anticipation of a rate hike by the US Federal Reserve is likely to keep any recovery in equities under check. Foreign investors have pulled out nearly Rs 5,500 crore from stock markets since the beginning of the month. The latest sell-off comes after Foreign Portfolio Investors (FPIs) withdrew Rs 7,074 crore from equities last month.

“Inflation data and US Fed action will dominate action this week. We expect the downside bias to continue in Indian equities,” said Ravi Shenoy, AVP-Midcaps Research, Motilal Oswal Securities Ltd.

 Inflation data for November based on the wholesale price index (WPI) and the consumer price index (CPI) will be out on Monday.

Stock markets on Monday may also react to IIP data, which came post market hours on Friday.

Industrial growth for October was 9.8% as against 8.0% estimated by most market participants. Growth in the capital goods sector was 16.1% as against a decline of 3.2% last year.

While many market participants point to the low base last year, when industrial growth declined 2.7%, and due to spending ahead of festival season, some believe the better-than-expected growth is showing signs of recovery in the economy.

“Monetary policy decision by the US Federal Reserve, macroeconomic data and trend in global markets will dictate trend on the bourses this week. On the domestic front, the non-functioning Parliament is an added concern. Investors’ focus is on whether the GST Bill will be passed,” said Vijay Singhania, Founder-Director, Trade Smart Online.

“Considering the GST Bill and upcoming Fed policy meet, we continue to hold our negative view on Nifty and expect volatility to touch newer highs in the coming week.”

impact of rate hike

A hike in interest rates which have been at near-zero levels since the last decade will send shock waves across the world’s capital markets.  A rate hike could potentially lead to a massive pull-back of foreign funds from emerging economies like India. It is expected to dent business margins as access to capital from the US will become expensive.

Over the past week, the BSE benchmark Sensex fell by 593.68 points, or 2.31% to 25,044.43. In addition to the US, Indian markets can come in for a bombardment as frantic dollar buying will devalue the rupee.

Rupee under pressure

On a weekly basis, the rupee weakened by 17 paise at 66.89 (66.8850) (December 11) to a US dollar from its previous close of 66.70 (December 4).  “The rupee value is expected to be under pressure till the Fed conducts its FOMC,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.  “It is expected that the Fed will likely increase the interest rates during its meeting slated for next week. This will not only dent the Indian rupee but all the other EM (emerging market) currencies as well.” Reserve Bank of India Governor Raghuram Rajan said there was a 70-75% probability of a Fed rate hike next week. Rajan said he expected the Fed to hike interest rates by 25 basis points but added that the RBI was prepared for “any eventuality.”         -Agencies

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