Fed rate hike will not affect India

The expected event might impact the sentiments of FIIs who brings in money, “But it would have no significant impact on Indian stock markets,” says Nilesh Shetty, Fund Manager, Equity with Quantum AMC “In fact, it may turn out to be a non-event as far India is concerned.” The subdued earnings of Indian companies (which determine stock market returns) are likely to take a big jump forward. “Catalysts for that, like good monsoon and the government’s continued focus on structural reforms, are well in place,” adds Shetty. Since India essentially remains a consumption driven economy, good monsoon, benign interest rates together with pay commission hikes would provide enough triggers for consumption to pick up in a big way, thus improving the finances of companies.

Indian stock markets were in bullish mood for the better part of the week gone by largely due to foreign liquidity which lifted the Sensex — the benchmark index of Bombay Stock Exchange — to over 29,000 levels, a high gained by it back in April 2015. Many feel that the uninspiring US job data released recently might restrain the Central bank to hike interest rates which for the Indian equity market means an un-interrupted inflow of cheaper liquidity. Many economists believe that even after Fed’s hike, India’s attractiveness among foreign investors is likely to sustain due to India’s pro-reform march.

The Modi government’s initiatives in promoting financial inclusion, pushing GST to its logical conclusion, structural reforms being implemented in the fuel subsidies front, low (but sticky) inflation that opens the door for further interest rates decline, are  all pointing out towards the good prospects of India’s growth story. Such a view about India is being endorsed by many multi-lateral and credit ratings agencies by calling India a “bright spot”.