There has been a lot of talk about a FED Rate hikes and its effects on the Indian markets. There may be some negative impact for a few days but history says that there has been no major impact on the Indian stock markets as evident from the chart below. Infact we have seen Indian markets do very well whenever there has been persistent FED rate hikes.
Every time FED rates have been changed by FOMC we have generally seen a series of rate changes.
We can see that historically FED hikes have generally been positive for the SENSEX. Infact the bull run of the SENSEX between January 2004 & January 2008 coincides with a sharp increase in FED rates from 1% in May 2004 to 5.25% in August 2007. We are currently witnessing a similar move in SEXSEX from March 2022 till date as FED has increased rates by 375 bps to 4%.
The longest ever when there have been no changes in FED rates was between Dec 2008 to Dec 2015 – FED Rates were cut in December 2008 from 1% to 0-0.25% and again hiked by 25 bps in December 2015. During this period of low FED rates, SENSEX took 5.5 years to double on a low base and return to its previous high it touched in January 2008, only in March 2014.
Between December 2015 to August 2019, SENSEX was up over 50%
Thus going by this trend we expect the current FED rate cycle to have a positive impact on Indian markets in the near term till we see a major reversal in FED rates.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 14 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.