How will mkts react to the Fed meet tomorrow?

Rob Subbaraman, Senior Economist at Lehman Brothers expects the Fed to cut rates by 25 basis points. He says, “The risk is that they do more into 50, but the baseline view is they will do 25. I think 25 bps is priced in, so I don’t expect the market to react that much. Though, if there was a 50 basis point cut, it might be taken more positively by the market."

But, he's said that there are a few reasons not to expect a 50 bps cut. One would be that the data out of US hasn’t been unanimously bad. Another key reason is inflation and the Fed would be reluctant to cut very aggressively given concerns about inflation.

On the other hand, Seshadri Bharathan of Dawnay Day AV Financial Services believes the FOMC meet will not be a life-altering event. He said, "Money will chase emerging markets and especially growth stocks, which are expected to do well in coming year’s time. To a certain extent, everybody has been talking that there would be 25 bps rate cut, which is more or less factored in.

So he doesn't see much downside for India or the markets coming below 4,400 on the Nifty at this point of time.

Though, if they cut less than 25 bps or it does not happen at all, short-term sentiment might be bad resulting in liquidity concerns.

Ashu Madan, National Head of Religare is of the view that, "The markets could go either way, but to my mind the bias is only on the positive side."

"I do not see any sell off happening. But to my mind, the subprime problem is down and out and it is over. Now it is the fresh triggers, maybe political or maybe the earnings season, which is coming up, but I do not think that Fed will impact any sell off, there is hardly any position."

Michael Preiss, Associate Director of Investment Advisory Group of HSBC thinks there's a possibility of the markets selling off even with a 25 bps cut, atleast for the short-term. He reasons that the stocks are the cheapest now in 6-10 years. That is why, a lot of people will not want to short in the market at this level. So, he thinks the market most probably has perhaps more upside than downside at this level.

Another trigger to watch for tomorrow are the advance tax numbers that came out today. Though Madan doesn't think they account for a major trigger, "Advance tax numbers aren't a major trigger either ways and it is a mixed bag. Other than ICICI Bank, they are all reasonable and as per the expectations. SBI is also good, Gujarat Ambuja is a positive surprise, so they are on the positive side and there is no negativity in those numbers. In short it could turn out to be another non-event, but with a positive bias."