US Fed's rate call to set the course for markets

MUMBAI: The outcome of the much-awaited US Fed policy will determine whether the stock market's recently-acquired strength will sustain in the coming days. The panic seen in November has subsided with foreign investors turning buyers of local stocks, though moderate, but if the US Fed on December 14 hints at faster interest rate increases next year, the recent bounce may prove to be short-lived.

In December so far, foreign portfolio investors have net bought shares to the tune of Rs 500 crore. “The intensity of FII selling has come down but post Fed announcement; if the commentary were to be too hawkish there could be a near term weakness in markets," said Sampath Reddy , chief investment officer, Bajaj Allianz Life Insurance.

“The consensus emerging is that there will be a 25 bps hike in rates followed by one or two more hikes in 2017," said Harsha Upadhyaya, CIO equity of Kotak Mutual Fund. “The commentary is key of course.“


Given the generally slow business activity in the second half of December and expectations of weak third quarter results for auto and consumer discretionary companies, analysts said even the domestic market players will maintain a cautious outlook.

“One may not see a significant correction in the market but the short term outlook is cautious given that even by January the cash crunch is not likely to go away," Reddy of Bajaj Allianz said.