After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector and FMCG sector witnessing maximum buying interest.
The BSE Sensex is trading up 164 points (up 0.5%) and the NSE Nifty is trading up 41 points (up 0.4%). The BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 64.78 to the US$.
Minutes from the Federal Reserve’s last meeting released showed a lack of consensus on the future pace of US interest rate increases.
This came as Fed policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rates hikes.
According to the minutes, several officials wanted to announce a start to the process of reducing the Fed’s large portfolio of Treasury bonds and mortgage-backed securities by the end of August.
The Fed, in its last meeting held on June 13-14, raised its benchmark interest rate by 25 basis points to 1.25%. This was the third such increase in six months – and a message of confidence from the Fed in the strengthening of the US economy.
US Federal Reserve rate hikes generally have a negative impact on emerging economies. But India is currently seen as better equipped than other emerging markets to ride the impact of higher US interest rates. That’s largely because of its stronger economic growth and impressive foreign exchange reserves of more than US$300 billion.
Foreign portfolio investors may not drain funds from India in a knee-jerk reaction to the Fed rate hike, as that would mean missing out on the enormous growth opportunities Indian markets offer.
One shall also note that most Fed policymakers now think that the central bank should take steps to trim its balance sheet later this year as long as the economic data holds up.
