Indian markets resilient to Fed action over last two decades: Capitalmind

According to Capitalmind Financial Services study, in the last three decades, the most frequent Fed action has been an increase of 25 bps, which has been done 39 times.

Indian markets have been resilient over the last two decades irrespective of the US Federal Reserve's actions, said a recent study by Capitalmind Financial Services.

The study also showed that Nifty has outpaced or, at worst, matched the S&P 500 in local currency terms over the last two decades.

On the resilience of Indian markets, Capitalmind's research found that the Fed's rate increases are followed by a negative day in equity markets, which are then followed by an up day. The median Nifty return on the day after the Fed rate action announcement (since the announcement happens after the Indian markets close) is 0.2 percent.

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The statement read, "US Fed has had six alternating easing and tightening cycles over the last 34 years. For Indian markets, the most productive cycle was the US Fed’s easing cycle from July 1990 to February 1994 where Nifty witnessed a gain of 310%, followed by the tightening cycle in June 2004 to September 2007 where it witnessed a gain of 202%."

It added, "The only stretches of negative Nifty returns came during tightening cycles in February 1994 to July 1995 at -23% and March 1997 to September 1998 at -14%."

According to Capitalmind Financial Services study, in the last three decades, the most frequent Fed action has been an increase of 25 bps, which has been done 39 times. While, the Fed announced a 50bps rate cut 10 times in the last three decades, which has resulted in a median return of +1.6% for the Nifty, a 25bps cut has been followed by a more modest -0.5% median Nifty return. There are outliers as well, for example, the nearly 7% drop in October 2008 following a 50bps cut in the middle of the global meltdown during the GFC.

Anoop Vijaykumar, Investments and Head of Research, Capitalmind, said, "While easing US interest rates are directionally positive for equities in general, we should keep in mind interest rates are just one variable in a complex adaptive system that determines the direction of Indian equity markets".