FOMC impact on India financial markets?

Dovish stance of start of rate-hike beyond 2015

It is the best outcome for India markets, when it is beaten down since first week of March 2015 to provide much needed momentum for relief. NIFTY will extend its relief rally from 7935/7950-8000 to 8435/8450-8500 and Bank NIFTY from 17150/17200-17350 to 18650/18700-18850. It will be great relief for India 10Y yield to unwind the recent crash from 7.62-7.65% to 7.90-7.93%. Rupee will get much needed recovery from 64.20-64.35 into 63.20-63.45 for RBI to put unlimited $ bids.

Hawkish stance of start of rate-hike on or before September 2015

FOMC signal of start of rate-hike signal on or before September 2015 will be disastrous, triggering FPI panic. NIFTY will be down at 7500-7650, BNF at 16000-16400, India 10Y yield into 7.90-8.05% and Rupee into 65-66.50 range. While it may not be very discomforting to RBI, market stakeholders will be in great pain.

Neutral stance by the FOMC

If the timing of the rate-hike is kept open between September to December 2015, it will set consolidation tone in the short term. NIFTY in sideways mode at 7750-8250, BNF at 16850-18100, India 10Y at 7.75-7.90% and Rupee at 63.85/64.00-64.85/65.00.

What to expect?

It will be wishful to expect dovish guidance from FOMC. The choice is between staying neutral or mild hawkish approach, confirming start of rate-hike cycle in September to December 2015 and open on the start date. All taken, it may not be prudent to stay heavy on risk, given the limited upside against possibility of marginal post-FOMC sell-off. It may be good either to stay risk neutral or risk-off for action post-FOMC.

Moses Harding