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  • Devangshu Datta - Independent Technical Analyst and Market Expert

    Devangshu Datta

    Independent Technical Analyst and Market Expert

    DATE: December 07, 2015, 01:00 PM

    SUBJECT: Are the markets prepared for a US Fed rate hike?




    Hello and welcome to the webchat with Devangshu Datta whether the markets are prepared for a rate hike by the US Federal Reserve

  • M


    Why should the FIIs flee Indian market when the US Fed increases rates marginally? Looks more man made than real. What are your thoughts?


    The fear for an FII is that the Fed will continue to raise rates once its started, not so much the initial impact of 25 basis pts here and there Markets are "manmade" artefacts so such fears have to be taken seriously I guess. Also, is there a reason for FIIs to stay invested in Indian equity, given flat earnings for the past two years and not much signs of acceleration?

  • Y


    Which sectors will do well in 2016 and why? Also what's your take on mid-caps?


    Very difficult to answer - there is little clear sense of the economic direction. The big play will be in financials I guess since rates should continue to come down. This should mean many rate sensitive sectors will do better. BUT - the public sector banks are in deep trouble so financials minus public sector banks should do well. Also the rupee will be under pressure which could mean a rebound for exporters (who have had a bad time in last 12 months) My take on midcaps is that they will probably continue to outperform large caps, sector by sector

  • R


    What is your target for the Nifty by this December-end? Is it a good time to buy? Which large-cap stocks do you suggest?


    December 2015 end? Not much difference from now - may be a little lower. It;'s a good time to buy if you have a very long-term perspective. Not for the short-term. Any stock which is sensitive to the USD gaining in strength could do well - so big Pharma, big IT and other exporters

  • M


    Do you think US Fed rate hike could be positive for India? If yes then what are the sectors that will benefit the most?


    It should force the rupee down. As of now, the INR is probably overvalued - the RBI's Real Effective Exchange Rate calculations suggest that. Also exports have now fallen for about 12 months, which is also a sign of probable over-valuation. So a lower rupee could provide a boost to exporters in general. Maybe to tourism? A lower rupee may also attract some amount of FDI to newly opened sectors because overseas investors will hope to get bang for the buck. Anecdotally however FDI inflow is slowing down

  • A


    Which sectors should one watch out for post the US Fed meet?


    Anything that benefits from a weaker rupee - see above.

  • M


    What is your outlook on the banking stocks which are currently reeling under pressure because of the strengthening of the bond yields which rose sharply in the recent past? Meanwhile, rising NPAs continue to haunt the sector. Your views please.


    The problem is of massive dimensions and it has grown for the last four fiscals. The public sector banks in particular are in deep trouble. The government has to take fast decisive action in putting up massive amounts (Rs 240K crore plus) for recapitalisation and also to meet Basel III norms. It also has to put better prudential systems in place where PS Banks can't be misused to just throw huge sums at the politically favoured. When did you last see an Indian government take fast decisive action?? I am not very hopeful that the situation will be dealt with until it gets quite a bit worse and becomes a full blown crisis.

  • J


    US jobs report has suggested that the economy is well placed to handle the rate cut this month. What is your advice to stock holders?


    Ignore the US rate hike (I assume you mean hike not cut?) if you have a long-term perspective, or use any fall to average down your cost of acquisition. By and large, the "Indian" economy (which the US Jobs report and the Fed don't consider) should not be badly hurt.

  • R


    What will be the impact of US Fed rate hike for the emerging markets especially India?


    Generally slightly negative I think. EM is not expected to see fast growth and hence return expectations are low. India is expected to be among the best EM performers but earnings have been flat for two years and some investors are getting impatient. FII selling has been seen in the past 8 months

  • P


    A US Fed interest rate hike will result in a strong dollar. Do you think a retail investor should play safe and invest in defensive stocks? What are your favourite defensive names at current levels?


    What is your time-frame? If you are looking at short time frames, don't invest in equity at all. Debt funds will do well if the RBI continues to cut rates. If you are looking at a long time frame, defensive stocks will probably give lower returns than high risk cyclicals. Otherwise, there are the usual suspects in FMCG -- all FMCGs are mor or less highly valued but growth could accelerate in FMCG if the 2016 monsoon is better. However, if you are buying FMCGs, buy on the basis of growth prospects not defence. Rather than pure ""defensives", I'd also suggest, investors should look for high dividend plays (where dividend is a fairly high percent of current price).

  • A


    What are your top picks from the export-oriented segments such as IT and pharma?


    The usual suspects - pick any three or any five at random from each segment. Quite seriously, all these businesses have some strengths and weaknesses and they are all commoditised at some level. If you want to do it mechanically, go to the NSE IT and Pharma indices and pick the 3 stocks from each with the worst returns in the past year.