Impact of US Fed Rate Hike on India

IMPACT on INDIA (Expert opinions)

Indranil Sengupta, India chief economist, Bank of America Merrill Lynch

“We hold the contrarian view that Fed tightening is a long-run positive, although EMs could well see one round of sell off in the coming months. We expect softer oil prices and sufficient forex reserves to keep Fragile Five fears at bay for India in the event of a sell-off, although India’s BoP indicators still trail other BRICs. Fed tapering is also pulling down oil prices below US$100/bbl from US$118/bbl when INR crossed Rs68/USD last year,”

Dipan Mehta, Member, BSE and NSE

FII flows are driven by interest rates movement in the US and other developed economies. Also, asset price movements in those economies also impact global flows.

No doubt, to that extent India is vulnerable and if there is a selloff in global equities or emerging markets, then we will not be spared. “However, the decline may be less than other markets. Nonetheless, there will be a negative effect. India cannot escape a ‘risk off’ trade. Since the new government formation, international events are having a less of an impact as investors focus on government steps to revive the economy and the RBI moves based on macro data such as inflation, GDP growth rates, IIP etc.,” he added.

How would India benefit?

Sutapa Roy, Research Analyst-Economy at Microsec Capital Ltd.

“Now for India, the economic situation is much better than it was 2-3 quarters ago. India has taken some of the major steps compared to its EM peers to control currency movement and increase foreign exchange reserves. Only in recent past the Indian market hit an all-time high. So corrections will definitely be there, but not as much as we saw in 2013 as fundamentals are better now,”

Roy is of the view that India has already outperformed the other markets in the recent past and after corrections, it will definitely attract some fresh capital. Although it will take the US Fed some time to shift from its zero interest rate policy, but if they do that, there may be a kneejerk reaction wherein some hot money may try to get out.

Vikram Kotak, CEO & MD, Asset & Wealth Management, Fortune Financial Services

“On a totality basis, India is possibly the only market in the emerging market basket, where a 15 per cent to 20 per cent earnings growth is reasonable to expect and the economy recovery looks robust with GDP move from 5 per cent to 7.5 per cent in three to five years’ time being almost a surety. There are a lot of positives for India right now than the negatives. However, you might see some healthy corrections coming in when the markets start consolidating again,”

The overall trend of the market looks quite positive and given the fact that the markets have run up in the last three to four months, a correction is indeed healthy as it will give opportunity for fresh investments.

Hemang Jani, Senior Vice President, Sharekhan

 “The US FOMC meet could provide the much-needed correction and about 5 per cent to 10 per cent correction at the index level in any market is part of the bull market story. I am not really perturbed by this. In fact, this would be a great opportunity for a large number of retail investors who have not been able to participate to the extent they would have wished. So it is a great welcome sign for the investors.”

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