There has been a lot of talk about a FED Rate hike possibly by 25 bps and its effects on the Indian markets. There may be some 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.
Points to note here:
· This is possibly the longest ever when there have been no changes in FED rates. FED Rates were last cut in December 2008 from 1% to 0-0.25%.6 years 10 months to be precise.
· 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 last 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.
· For a better understanding of the initial years (where SENSEX looks flat in the main chart) find attached a chart for the period January 1990 to December 2000 below.