Indian markets remained weak on Thursday despite the US Federal Reserve’s tough stance on inflation, buoyed by broad expectations about the move and support from strong global cues. However, a reduction in upcoming US bond purchases and subsequent rate hikes could put pressure on future fund inflows into India.
The BSE Sensex rose 113.11 points or 0.20% to 57,901.14, while the Nifty rose 27 points or 0.16% to 17,248.40. Other Asian markets closed mostly higher, with Japan’s Nikkei, South Korea’s Kospi and China’s Shanghai Composite rising 2.13%, 0.57% and 0.75%, respectively.
“Global cues turned positive despite the US Fed’s stern statement, as investors became optimistic that Fed policy tightening would help fight inflation without impacting economic growth. Investors looked to reduce risks of new COVID restrictions.” Instead, it focused on the prospect of more assurances from central banks. The ECB, in its policy meeting, said the ECB, in its policy meeting, is likely to see a gradual withdrawal from stimulus in high inflation conditions, said Siddharth Khemka, head of retail research at Motilal Oswal Financial Services Ltd. ready to be unveiled.
Khemka said that though global cues have turned positive after the major Fed policy event, FII selling continues, absence of any positive trigger and strong action in the primary market is likely to continue, which may put pressure on the secondary market. Yes, Khemka said.
The Fed said it would end its pandemic-era bond purchases in March and pave the way for a three-quarters percent hike in interest rates by the end of 2022 as the economy nears full employment and the US central bank with a boom. competes. of inflation.
Due to rising prices and strong employment, Fed officials projected that its benchmark overnight interest rate would need to rise to 0.90% from current-zero levels by the end of 2022. This would require a rate hike cycle that pushes the policy rate up to 1.6%. in 2023 and 2.1% in 2024 – still considered loose by most projections.
According to Arvind Chari, chief investment officer at Quantum Advisors, the biggest risk to the Indian markets will be the Fed reducing the size of its balance sheet. “This means the Fed will take away liquidity. The fact that this was discussed at the December FOMC meeting suggests that if conditions persist, the Fed could not only increase rates but also cut bonds. may begin allowing bonds to be sold to mature and/or reduce the size of its balance sheet.
Reuters contributed to the story.
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