Sanat Vallikappen and Vyas Mohan
MUMBAI: India’s market players believe that the US Federal Reserve Board will adopt a benign stance on interest rates from now on. In a straw poll of 14 brokers and market intermediaries conducted by DNA Money a day before the US Fed was to debate a rate hike, as many as eight of them said that they expected only one more rate hike of 25 basis points.
Two others said they expected no hike at all, and that rates have now peaked.
Another four said that that the rate would peak at 5.75 %, which means there is one more hike in store sometime this year.
If the majority’s expectations prove true, Uncle Sam will slam the brakes on interest rates after 17 consecutive hikes.
“If the Fed doesn’t raise rates on Tuesday, 5.25% is likely to be the peak. If it does hike rates, then that is likely to be the peak,” says Shriram Iyer, head of research at Edelweiss Securities.
All 14 of those polled said that the Bombay Stock Exchange Sensex would react negatively in the short run if the Fed raised interest rates by 25 basis points.
However, over a three to six-month period, they expected the index to trade in the region of 10,000-12,500. Only two said that the Sensex would fall below 10,000.
The poll suggests that whether the Fed raises rates or not, the three- to six-month trajectory of the index will not be affected.
“There is money that is marked for the emerging markets. We have survived till 5.25%, then why not 5.5%? If the Fed raises rates, it is not going to be the last straw on the camel’s back,” says Pankaj Valia, vice-president, First Global Stockbroking.
The rupee could, however, see some weakness if the Fed hikes rates. While nine of the 14 market mavens polled said that the rupee would fall, four were unsure, and one said there would be no change.
However, interest rates are another matter. If the Fed raises rates, eight said it wouldraise domestic interest rates by 25 basis points in the near future.
One of them said it is likely to go up by 50-75 basis points, while another said local factors would determine rates. The remaining four said there would be no impact on local rates.
