Though the US Federal Reserve has raised its key interest rate by 75 basis points, the biggest hike in the past 28 years, the markets in India so far seem unaffected. Analysts say markets have already factored in the 75-basis-point rate hike in the past few days. Both the Indian equities market and the rupee opened in the green.
How Sensex Is Reacting?
Indian equity markets opened on a positive note on Thursday morning after global markets cheered the 75 bps hike by the US Fed overnight. At 9:16 am, the Sensex was higher by 506.41 points or 0.96 per cent at 53,047.80, and the Nifty was up 142.40 points or 0.91 per cent at 15,834.60.
In the 30-share Sensex, ICICI Bank, Bajaj twins, IndusInd Bank, Reliance, SBI, Maruti, Titan and Axis Bank led gains, rising up to 2 per cent. HUL, Nestle, Dr Reddy’s and Bharti Airtel, meanwhile, were the handful of losers.
However, at 11.48 am, the Sensex swung and saw a dip of around 280 points to about 52,252 points. The reason for the sudden fall is not clear for now.
V K Vijayakumar, chief investment strategist at Geojit Financial Services, “The guidance of a 3.4 per cent rate by end of 2022 and 3.8 per cent terminal rate in 2023 refect the determination to fight inflation. However, the presently unknown factor is whether the rising rates will tip the US economy into recession.”
An analyst said the US Fed’s guidance helped calm markets temporarily but now, the investor focus is back to macroeconomic factors such as inflation.
How Is the Rupee Reacting?
After touching the all-time low on Wednesday, the rupee on Thursday strengthened by 15 paise to 78.07 against the US dollar in opening trade following the US Federal Reserve hiked interest rate by 75 basis points and signalled more rate action to fight inflation. Besides, a firm trend in domestic equities and weak American dollar in the overseas market supported the domestic unit, forex dealers said.
However, unabated foreign fund outflows and surging crude oil prices capped the appreciation bias of the rupee, they added. At the interbank foreign exchange, the rupee opened strong at 78.06 against the US dollar, then inched lower to quote 78.07, registering a rise of 15 paise over the last close. It was moving in a very tight range in early deals. In the previous session, the rupee had closed at a record low of 78.22 against the US dollar.
How Is the Bond Market Reacting?
The bond prices were in the morning running lower as the yields were marginally up by 1 basis point. However, now, the situation has reversed and the yields is running lower by 2 basis points and the yield on the benchmark 10-year government securities is at 7.573 per cent.
The US Fed hiked interest rates by 75 basis points and signalled aggressive rate hikes and targeted interest rates at 3.40 per cent by end of this year. The US Fed reduced the growth forecast to 1.7 per cent for 2022 and also for 2023 against earlier forecasts of 2.8 per cent for 2022 and 2.2 per cent for 2023. The US Fed also raised the inflation target for 2022 to 5.2 per cent but reduced it for 2023 to 2.6 per cent and 2.2 per cent for the year 2024.
What Analysts Say?
“We expect the dollar index to remain volatile and could hold its support level of 103.55 on a closing basis. On the other hand, the rupee showed weakness after higher than expected wholesale price index data of May 2022. The rupee hit its lifetime lows on Wednesday against the US dollar. Sell-off in the domestic equity markets and higher crude oil prices along with widening trade deficits are also pressuring the rupee. We expect the rupee to remain volatile and could test 78.55 level,” Rahul Kalantri, vice-president (commodities) of Mehta Equities, said.
Gaurang Somaiya, forex and bullion analyst at MOFSL, said, “Today, focus will be on the Bank of England policy statement and a hawkish commentary could keep the pound supported at lower levels. We expect the USD-INR (spot) to trade with a positive bias and quote in the range of 77.70 and 78.40.”
(With inputs from PTI)