Market volatility after Fed rate hike

Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management, said, “We believe the tightening will continue beyond the initial expected levels, albeit at a higher pace.

The rate hike by the Fed was on expected lines and thus came as no big surprise to the markets and body language becoming more positive. However, the major concern for the markets is the tightening effect on growth, which always comes with a lag, Jain said. The prospect of a recession remains quite real and that “the market will remain volatile for a few months”, he said.

Analysts said amid concerns, volatility would remain high and market participants would keep an eye on the US inflation data released by the US on November 10 and December 13 as well as the US payrolls report for December, analysts said. Volatility will remain high around these data points as market participants take cues from the Fed actions. Recently released payroll data was much better than expected, indicating that the Fed may be aggressively raising rates.

“The current market texture is non-directional. Perhaps traders are waiting for both sides to break out,” said Shrikant Chauhan, head of equity research (retail), Kotak Securities Ltd.

The market opened with a fall on Thursday due to weak global cues. Although it bounced back sharply, it was followed by a range-bound movement. Nifty was down 0.17% and Sensex 0.11% on the day

Jain said that the Indian stock market will remain in a limited range.

The dollar index and US 10-year bond yields also edged up, with traders focusing on Fed tone. Analysts said the dollar index crossed 112.80 after the Fed rate hike, continuing the sharp turnaround rally of previous sessions. This may put pressure on the rupee and other currencies. Sterling, euro and yen were under heavy selling pressure against the dollar, said Anindya Banerjee, vice president of currency derivatives and interest rate derivatives at Kotak Securities Ltd.