Fed Rate Hike Impact on Indian Stock Market

In order to revive the global growth and strengthen the US economy and employment rate, Fed chief Jerome Powell has signaled for more hikes in the interest rate in the coming months.  While this financial accommodation in the form of US Fed rate hike may sound to be good news for the US citizens but what impact will it make to the Indian stock market? Let’s have a look!

Impact of US Fed Rate Hike on Indian Stock Market

Decline of Indian Rupee

The Indian financial sector is already in the doldrums.  Every day a new scam is unfolded, thanks to pliable rules laid down by Indian apex authorities. And with the hike in the interest rate it is likely that Indian rupee will step down a little more. The weak rupee may hurt the sentiments of the different sectors in SENSEX and Nifty while may prove advantageous to others.

Information and Technology Sector

This is the sector that is most vulnerable to exchange rate fluctuations. It may not be an attractive sector to invest in if the Fed rate continues to hike the interest rate. But if it falls within the net importer category, it is believed that profitability of these companies will increase resulting in translation gain.

Textile Sector

It seems Arvind Mills will gain from the Fed rate hike, especially after its announcement of a joint venture with Adient to manufacture and sell automotive fabrics in India.  The company is going to manufacture the products in Ahmedabad and sell the same to the global countries, so the weakened rupee would definitely be good news for Arvind Mills.

Automobile stocks

This sector has a considerable amount of income from the export of vehicles. So, definitely this sector can be bet upon when the rupee is in a volatile mode.

Government company stocks

While the government is bracing itself tightly to increase the ratings of the government bonds, Fed rate hike may act as a deterrent towards it. It is believed that the rise in the interest rate will make Indian bonds less attractive and witness a sell-off by the foreign investors. Moreover, the lack of liquidity conditions will add pressure. The Singapore DBS Banking Group has already forecasted that the future of Indian bonds is challenging. It will definitely affect the Indian equity market.

Companies with US Funding

There are several Indian companies including startup firms who have raised money from the international market at a finer rate through the bonds with a motive to earn a higher income. The increase in interest rate would have a negative impact on the borrowing cost of such firms and may lead to slow down of these stocks. The stocks to watch out for are ICICI Bank, NTPC, State Bank of India, Adani Ports and Shriram Transport Finance.

Though there is no cause of alarm for the Indian economy, as our PM is taking every step to control the inflation rate and to revive the economy, but it is anticipated that this move of Fed will lower down the growth rate of Indian economy.