The Federal Open Market Committee’s (FOMC) will announce its decision on the federal fund rates later in the day but consensus suggests that a rate hike of at least 25 basis points is practically a foregone conclusion.
The last time the U.S. Federal Reserve raised rates was on December 16 last year, by 25 basis points to 0.5 percent. That was the first rate hike by the central bank since 2006. While markets remained more or less sanguine in the run-up to the decision, was seen in the immediate aftermath.
In The Run Up To The Last Fed Rate Hike
There was little change in major indices like the
However, foreign portfolio investors pulled out money from both equity cash and debt markets. A month prior to the Fed’s decision, FPIs sold stocks worth Rs 9,401 crore ($1.4 billion) in equity and sold debt securities worth Rs 5,860 crore ($882 million) on a net basis.
In the same period, the weakened by only 1 percent against the U.S. dollar despite outflows from the debt and equity markets. The rupee had declined less than 0.5 percent for the period 3 months prior.
Following The Last Fed Rate Hike
What followed was a
Six months on however, the losses had reversed with the Nifty registering gains of 1.4 percent and the Nifty 500 moving up by 1 percent. FPIs too had returned to the equity market with net buying worth Rs 16,624 crore ($2.54 billion) in the period. FPIs however continued to sell in debt markets and posted a net outflow of Rs 4,589 crore ($643 million) in the same time.
Nearly 12 months since the Fed’s last rate hike, these variables have changed substantially. The Nifty 50 has gained over 5.8 percent with broader Nifty 500 outperforming, up about 8 percent in nearly one year. FPIs have since invested Rs 31,227 crore ($4.77 billion) in the but withdrawn more than Rs 46,085 crore ($6.72 billion) from the Indian debt market. The Indian rupee is the only variable which has come back to nearly the same levels posting a decline of just 1 percent since the last Fed rate hike.
The Current Backdrop
The Indian equity market has been volatile over the last month on account of external as well as domestic factors. November saw a surprise win for Donald Trump in the