After Fed move, a focus shift to domestic events

Street will seek fresh cues from earnings growth, reforms and Budget proposals

The US Federal Reserve's decision to raise interest rates by 25 basis points has shaved much of the uncertainty till now on Indian and global equity markets. With the important event behind, experts believe the markets were unduly worried.

Ed Perks, chief investment officer, Franklin Templeton Equity, says: “This small action is not likely the harbinger of an aggressive tightening regime and also reminds equity investors that a small rise in interest rates doesn’t mean the markets will head into a downward spiral.”

Experts now feel foreign institutional investor (FII) outflows from emerging markets (EMs) will decelerate ,with some even expecting fresh inflow in 2016. Not in all EMs but those like India could continue to do well, if they deliver on key parameters.

Earnings growth is one of these, and the December quarter results will give some cues. The Indian economy is getting stronger and the reforms being carried out will play a larger role in driving the economy and the markets.  

Thomas Rookmaaker, director at Fitch Ratings, says: “India is not immune to potential general EM jitters related to the Fed lift off but is better placed than many peers, for a number of reasons.” The significant improvement in India’s external balances since mid-2013 is an indication. India is also less dependent than several others on commodity export and has, thus, not been negatively affected by the global rout in these prices.

Only a small part of its sovereign debt is held by  foreigners or is denominated in foreign currency. And, a favourable economic growth outlook makes it attractive to foreigners.

The stronger economic growth momentum now needs to get translated into earnings growth, says Sahil Kapoor, chief market strategist at Edelweiss Financial Services. He says there are early signs of the economy getting stronger -- industrial production numbers, project clearances, good consumer vehicle demand and so forth. As these translate into earnings growth, the markets should look up. Kapoor also believes that with uncertainty over on US interest rate rises, FII outflow from EMs should also taper and in two to three weeks, inflows should restart.  

Clearance of key legislation such as one the goods and services tax, progress in power distribution reforms and in the banking sector would also play a large role in driving growth and boosting sentiment.

Kunj Bansal, investment head at Centrum Wealth Management, believes the focus will now shift to the domestic front, with the Street seeking more evidence of growth. The December quarter earnings will be looked at for cues and then the focus will shift to the Union Budget.

Overall, experts believe the markets have nearly bottomed out and one could also see some up-moves in the indices.

Dhananjay Sinha, strategist at Emkay Global, says in the short term, the removal of anxiety over the Fed rate liftoff will help the markets. Indian equities have undergone sharp correction and could respond positively. The short-term reaction could push up stocks like ICICI Bank, Lupin, Tata Motors, Container Corp, Coal India and HCL Tech. Global cues, especially China’s economic growth (which is slowing) and currency movements (pressure for depreciation) could be hurdles and influence FII flows into India, affecting the markets.