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US Fed Hikes Rate, Possible Impact on Indian Markets

US Federal Reserve announced a 25-basis point rate hike, leading to a Sensex and Nifty rally.

On Thursday, the US Federal Reserve announced a 25-basis point rate hike, which the market had already priced in. The Sensex rallied upwards of the 61,500 mark, and the Nifty crossed the 18,190 mark. The rally is expected to continue in the near term due to the weakness in crude oil prices, a dip in bond yields, and the RBI’s recent pause in rate hikes. 

From a market perspective, analysts believe that more important than the expected dovish rate hike was Powell’s comment that the case of avoiding a recession is more likely than having a recession. This possibility of a soft landing for the US economy is also seen as a positive trigger for IT stocks, which have been on the backfoot over concerns about poor orders from the US.

The strength of the rupee and continued buying by Foreign Institutional Investors (FIIs) will impart strength to the market. High-frequency indicators in India reflect a resilient economy with improving earnings prospects. The sharp decline in crude is a bonus to the macroeconomy and benign for segments like paints, adhesives, and tyres. Despite this, there is concern about the US banking industry, which is currently far from satisfactory and could pose problems for the global equity market.

While the outcome of the US Fed meeting was on expected lines, the Indian stock market is expected to remain jittery as there was no commitment from the US central bank on inflation, which is still higher than the comfort of the US Federal Reserve. Market experts maintained that after the US Fed rate hike, the Indian stock market might remain in a base-building zone and bounce back strongly from its current support levels as FIIs are expected to become aggressive after weakness in the US dollar.

The US stock market reacted negatively to the rate hike, but there was a sharp fall in crude oil prices, US bond yields, and the dollar index, which are favourable for emerging markets. This led to a sell-off in US markets but may not have a material impact on India in the short run as the RBI has paused rate hikes and there is a weakness in crude oil prices.

After the market’s opening bell, the Nifty Bank is up by nearly 163 points, whereas the Nifty is up 110 points, and BSE Sensex is up 375 points from its previous close.

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