Fed’s hawkish pause has markets on alert. Will it keep Sensex, Nifty in check?

The US Federal Reserve (US Fed) held interest rates steady at 5.25-5.5 percent on Wednesday, September 20

The Federal Reserve, as expected, held interest rates steady at 5.25-5.5 percent on September 20 but the US central bank’s projection of a rate hike later this year pushed up two-year treasury yield to a 17-year high of 5.18 percent and the benchmark 10-year to 4.39 percent, the highest level in 16 years.

This, analysts say, could keep Indian equities in check over the near term.

Ahead of the Fed's rate decision on September 20, Indian equity benchmarks Sensex tumbled 796 points, or 1.1 percent to 66,800 and the Nifty50 232 points, or 1.15 percent, to 19,901.

“If US bond yields continue to remain on the higher end, foreign outflows from India can turn aggressive in the near term. Foreign investors would prefer to fetch higher returns from US bonds over emerging markets wherein currency risks also linger,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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On September 20, foreign institutional investors (FIIs) offloaded Indian shares worth Rs 3,110 crore. So far this month, FIIs have sold Rs 5,213 crore worth of equities.

Vinit Bolinjkar, Head of Research, Ventura Securities, too, expects markets to dive down further from current levels.

“Indian equities are expected to take cues from overseas markets. With oil prices rallying to higher levels, we expect the markets to further consolidate,” he added.

On September 21, Gift Nifty indicated a tepid start for bourses, as it quoted 19,857 levels at 7.20 am, down 115 points from Nifty Futures’ previous close.

ALSO READ: US Federal Reserve leaves rates unchanged, sees tighter policy through 2024

The median projection or the Fed dot plot reflected that the fund rate will peak at 5.6 percent this year, translating to another quarter point rate hike in the November policy meeting.

Analysts at Motilal Oswal Financial Services, however, said in their recent note that investors were betting on the Fed nearing its rate-hiking cycle, assigning just 30 percent chance of an increase in November.

For 2024, dots in the chart reflected that officials pegged two quarter-point rate cuts down the line to finish the year at 5.1 percent, up from the previous forecast of 4.6 percent. The dot plot also suggested fewer rate cuts than previously envisaged.

Following the Fed’s decision, major averages in Wall Street fell overnight. The Dow Jones Industrial Average was down 0.2 percent, while tech-heavy NASDAQ Composite and the S&P 500 indices declined up to 1.53 percent.

Mirroring the moves, Asia-Pacific markets, too, slipped in early deals on September 21. Japan’s Nikkei 225, Australia’s S&P/ASX 200, and South Korea’s Kospi declined up to 0.5 percent.

The US dollar index, which gauges a basket of six currencies, rose above 105-mark.

In the commodities market, Brent Crude and WTI Crude slipped up to 1 percent to $93 and $90 a barrel.

READ MORE: Oil prices ease 1% after US Fed leaves interest rates unchanged

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