Fed hike positive for Indian bonds and currency: Ind-Ra

Mumbai, Dec. 17: Federal Reserve chairperson Janet Yellen brought early Christmas cheer to the global markets, including India, by stating that future rate hikes by the USA central bank will be gradual. While the move was widely expected, there were concerns that Fed hiking interest rate could result in increased outflow of foreign funds from emerging markets like India.

Chief Economic Adviser Arvind Subramanian said India is “relatively well cushioned” and saw “quite minimal” volatility in the country’s markets. The US /Reserve has raised interest rates by 0.25 percent, its first increase in nine years.

The hike in interest rate by the US Federal Reserve did not have any impact on the Indian stock market as the BSE Sensex rose by 300 points today, said Dilip Piramal, president of Indian Merchant Chamber.

He added that the Fed’s confidence on recovery is good news for India’s exports, especially for the IT sector.

“For financial markets, with looming uncertainty over the Fed policy path behind, the driver for markets hereon will be more inward-focussed than external development-reliant”, India Ratings & Research Analyst Bansi Madhavani said.

While the Reserve Bank of India did not immediately respond to the US Fed action, the Finance Ministry said the impact on India would be minimal.

The sensitive index (Sensex) of the Bombay Stock Exchange closed the day’s trade up 309.41 points or 1.21 percent, and the broader Nifty of the National Stock Exchange also rallied sharply to end with a gain of 93.45 points or 1.21 percent up. If all emerging markets are going to find their funds choked, surely India will be in the same boat, more so since consensus earnings for FY16 have been cut by 20% so far-of course, India’s stable macros make it a better investment within the EME universe.

“India is much better placed today in terms of real GDP growth, lower inflation, lower current account deficit and ongoing fiscal consolidation”.

Secondly, India is less dependent than several of its peers on commodity exports, and has thus not been negatively affected by the global rout in commodity prices, he added. We do not expect any major impact on India. “Markets reacted positively to the rate hike as it is a sign of strength in the US economy and the rate hike finally reduces uncertainty as to when the US Fed would have acted”, Agarwal told IANS.