Fed hike better for India as it may stall Fx inflows:Report

Expecting a 25 basis points (bps) hike in the US Fed rate post-September 17 meeting, American brokerage Bank of America-Merril Lynch on Friday said delayed Fed action will only harm India as a postponement will stall portfolio inflows and prolong volatility. Stating that the country would "emerge as a relative value given the higher GDP growth" here, BofA-ML in a report said, "Portfolio flows could resume in equities due to risk diversification out of China's volatile equity markets and in bonds following the junking of Brazil by S&P, provided the RBI hikes the G-Sec limits for foreign funds." The US central bank is widely expected to hike its historically low interest rates either at its next week meeting or in December. Following the 2008 global credit crisis, the Fed brought down its repo rates to a low 0.25 per cent to help improve the world's largest economy come out of the recession and high unemployment.

Following the Chinese crisis, there have been views that Fed chairperson Janet Yellen may push back repo rate hike to December. The report also said the "best case scenario for India is a 0.25 percent Fed rate hike. While there could be a kneejerk sell off across EMs, India would likely emerge as relative value, given relatively higher growth." But the report warned that the worst is if the Fed delays action to October or December as more the delay higher will be volatility which will lead the foreign funds to keep of emerging markets, including India.