Impact of Fed Rate Hike On Indian Stocks By Karvy

Fed set to hike rates: surely but slowly

The US Federal Reserve has reaffirmed the current Federal Funds Rate target range of 0-1/4%. The Federal Open Market Committee (FOMC) has also updated its forward guidance policy. The FOMC is also continuing its policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt & mortgage backed securities. These actions along with the committee’s sizeable holdings of long-term securities should help in maintaining accommodative financial conditions.

Impact on India: The Fed may hike rates in subsequent meetings in June or September 2015. A rate hike will bring about volatility in the markets as well as capital outflows in India. But, significant ramping up of forex reserves to all time high levels and Current Account Deficit (CAD) being under control, make India better prepared to deal with the consequences of a rate hike in comparison to mid-2013 when Fed has announced QE3 tapering.

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