US Fed hike: What does it mean for Dalal Street investors?

The Fed raised interest rates by 25 basis points late Wednesday and indicated that there are signs of disinflation in the economy.

However, the central bank said that it has not yet reached the point of victory in its fight against inflation and that interest rates will need to move further up to achieve the desired target.

While projecting that the increase in borrowing costs would continue, Fed officials did not specify the timeline for such a move and if there was scope for a pause sometime in 2023.

But Fed Chair Jerome Powell said, “We can now say for the first time that the disinflationary process has started,” in the backdrop of easing goods prices, pandemic-related shortages, and supply chains getting back to normal.

“This was a good enough sign that we might be almost at the end of the rate hike cycle given that inflation is speeding down swiftly,” said Apurva Sheth, head of market perspectives and research, SAMCO Securities.

Even though rate hikes are expected to continue as per Fed’s guidance, the Street is not anticipating any harsh steps hereon from the central bank.“Powell’s comments, along with the robust release of ADP Employment Data, make the markets believe that the committee may remain too dovish regarding how high rates will go and how long they will stay there,” said Heena Naik, research analyst – currency at Angel One.

This US dollar index fell after the Fed’s decision and remained weak in trade on Thursday.

This, with a favourable Budget from Finance Minister Nirmala Sitharaman, could pave the way for foreign fund flows. A weak dollar bodes well for emerging markets as it improves the risk appetite for equities and triggers capital flows.

Since the beginning of the year, FIIs have been in a sell mode. In the last 30 days, they have net sold stocks worth more than Rs 23,000 crore, according to Trendlyne.

“Right now, the colour of FPI money has changed. Some long-only funds, ETFs are seeing adjustments in the portfolio due to index weight changes and some impact of this is being seen in India,” said Kranthi Bathini, market strategist, WealthMills Securities.

However, Bathini is confident of foreign capital flows into India given the strong domestic growth prospects which will get an additional boost from the Budget announcements.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times)