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How you can make your portfolio immune to US Fed’s interest rate moves

When interest rates rise, they do place some downward pressure on asset prices

January 31, 2022 / 10:07 AM IST
The US Federal Reserve building

The US Federal Reserve building

Market participants across the globe are expecting the US Fed to hike rates this year, though they differ on the quantum and timing of such moves.

Inflation in the US and other developed nations have been much higher than the expectations of the central banks. Subsequently, interest rate increases and an eventual reduction in the Fed's asset holdings would follow as needed, while officials monitor how quickly inflation falls from current multi-decade highs back to the central bank’s two percent target, he added. Put simply, the era of cheap money is behind us.

Does that mean stocks will fall further?

FIIs have been cautious and have gradually cut their exposure to Indian stocks. FII holding in Nifty 500 stocks have already come down to a six-quarter low.  “After the lows of March 2020, Indian stocks have shown a relentless upmove and now we have seen a first meaningful correction,” says Sharad Chandra Shukla, Director, Mehta Equities. Though domestic money through direct investments by young investors and a healthy SIP book of mutual fund is coming to support stocks, the FIIs are not going to invest now. The markets are going to be volatile in near term, though in the long term Indian stocks should reward investors, he adds.