Although the US Federal Reserve has raised its key interest rate by 75 basis points, the largest increase in 28 years, markets in India appear unaffected so far. Analysts say markets have already anticipated the 75 basis point rate hike in recent days. Both the Indian stock market and the rupee opened in the green.
How does Sensex react?
Indian stock markets opened positively on Thursday morning after global markets cheered the US Fed’s 75 bps hike overnight. At 9:16 a.m., the Sensex was up 506.41 points, or 0.96 percent, at 53,047.80, and the Nifty was up 142.40 points, or 0.91 percent, at 15,834.60.
In the 30 stocks, Sensex, ICICI Bank, Bajaj twins, IndusInd Bank, Reliance, SBI, Maruti, Titan and Axis Bank led gains, rising to 2 percent. HUL, Nestle, Dr. Reddy’s and Bharti Airtel, meanwhile, were the handful of losers.
At 11:48 am, however, the Sensex lurched and saw a dip from about 280 points to about 52,252 points. The reason for the sudden fall is not yet clear.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said: “The forecast of 3.4 percent at the end of 2022 and 3.8 percent at the end of 2023 reflect the determination to fight inflation. However, the currently unknown factor is whether rising interest rates will send the US economy into recession.”
An analyst said the US Fed’s guidance has temporarily calmed markets, but now investors’ focus has returned to macroeconomic factors such as inflation.
How does the rupee react?
After hitting an all-time low on Wednesday, the rupee strengthened 15 paise against the US dollar on Thursday by 15 paise to 78.07 as it opened trading after the US Federal Reserve raised interest rates by 75 basis points and announced more interest rate action to fight inflation. In addition, a solid trend in domestic equities and a weak US dollar in the overseas market supported domestic unity, forex dealers said.
However, continued foreign fund outflows and rising crude oil prices capped the rupee’s valuation bias, she added. On the interbank currencies, the rupee opened strongly against the US dollar at 78.06, then moved slightly lower to reach 78.07, registering a 15-paise gain from the last close. It moved in a very tight streak in early deals. In the previous session, the rupee closed at a record low of 78.22 against the US dollar.
How is the bond market reacting?
Bond prices were lower in the morning as yields rose marginally by 1 basis point. Now, however, the situation is reversed: interest rates are falling by 2 basis points and the yield on benchmark 10-year government bonds is at 7.573 percent.
The US Fed raised rates by 75 basis points, signaling aggressive rate hikes and targeting interest rates at 3.40 percent by the end of this year. The US Fed lowered its growth forecast to 1.7 percent for 2022 and also for 2023, from earlier forecasts of 2.8 percent for 2022 and 2.2 percent for 2023. The US Fed also raised its inflation target for 2022 to 5.2 percent , but lowered it to 2.6 percent for 2023 and 2.2 percent for the year 2024.
What analysts say?
“We expect the dollar index to remain volatile and could maintain its support level of 103.55 on a closing basis. On the downside, the rupee showed weakness after higher-than-expected wholesale price index data from May 2022. The rupee bottomed out against the US dollar on Wednesday. Domestic stock market sell-offs and higher crude oil prices, along with widening trade deficits, are also putting pressure on the rupee. We expect the rupee to remain volatile and could test the level of 78.55,” said Rahul Kalantri, vice president (commodities) of Mehta Equities.
Gaurang Somaiya, forex and precious metals analyst at MOFSL, said: “Today the focus will be on the Bank of England’s policy statement and aggressive commentary could keep the pound lower. We expect the USD-INR (spot) trades with a positive bias and trades between 77.70 and 78.40.”
(With inputs from PTI)
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