Indian equities overlook the Fed rate increase

The global weakness, India’s equity market managed to ignore the US Fed’s aggressive 75 basis point rate hike and finished with a small loss. However, Government Securities (G­Secs) took a hit, and the rupee ended the day with less value. According to analysts, the market’s stability was due to significant purchasing by foreign portfolio investors (FPIs) in the cash market and short covering by various market participants in the derivatives segment. Just 69 points, or 0.11%, were lost by the Sensex as it closed at Rs. 60,836. The Nifty index dropped 30 points, or 0.17%, to finish at Rs. 18,052. The current Fed move is the fourth consecutive 75-bps increase, and Chair Jerome Powell said it is too soon to consider a pause.

Motilal Oswal Financial Services’ Siddhartha Khemka, Head of Retail Research, said: Stocks in PSU banks, paints, and shipbuilding companies set the tempo. Domestic signals are really strong. The recent days have seen encouraging FII flows, which have given Indian equities much-needed support. On Thursday, FPIs purchased a net total of Rs. 677 crores worth of stocks in the cash market. The FPIs have net purchased stocks worth Rs. 4,723 crores during the last three sessions.

With returns rising and prices falling in line with the sharp increase in US treasury yields, G-Secs took the brunt of the Fed rate hike. The benchmark 10-year G-yield, Sec’s which was previously at 7.3986% (coupon rate: 7.26%), increased by around 9 basis points to close at 7.4829%. This paper’s price dropped by around 58 pence to close at 98.455 (99.03).
It appears that the Fed will keep raising rates until the terminal rate reaches roughly 4.75%, According to Ajay Manglunia, MD and Head of Institutional Fixed Income at JM Financial. He claimed that the yield on this paper could increase to 7.65–7.70% once the RBI raises the repo rate. He continued, “But there will be a reversal since following rate hikes could be less.”

The RBI sold dollars to keep the rupee from breaking through the 82.90 mark, causing it to conclude the day 10 paise weaker. The Indian unit closed at 82.88 per dollar against the previous closing of 82.78. A currency dealer predicted that the rupee could weaken to the level of 84–85 by December if the Fed continues to raise interest rates.

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