US Fed's taper talk likely to keep the bulls in check on Dalal Street

This is expected to suppress valuations in India; decline in P/E may nullify gains from rise in corporate earnings

The US Federal Reserve’s (US Fed’s) decision to quicken the pace of monetary tapering and raise interest rate sooner than planned to fight inflation is likely to keep the bulls in check on Dalal Street.

Historically, there has been a positive correlation between changes in the US Fed’s balance sheet and the movement of the Indian benchmark indices such as the BSE Sensex and the Nifty50. And, this correlation has been especially strong since the pandemic’s outbreak. (See the adjoining chart).

According to analysts, the transmission of US Fed’s action will largely occur through changes in stock valuation. “There would be a