The United States Federal Reserve on Wednesday announced the much-anticipated first rate hike after a period of three years. The decision to hike interest rates by 0.25 percent or 25 basis points came after the end of the two-day Federal Open Market Committee (FOMC) meeting.

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Speaking on the development to CNBC-TV18, Aditya Bhave of Bank of America said that the US Fed has delivered a hawkish message.

He said, “The Fed finally, belatedly capitulated to reality and delivered a strong hawkish message.”

Bhave also pointed out that seven FOMC participants have forecast a 200 bps hike in this calendar year. So, what are the concerns for the market?

“If you look at the risks, they are skewed to the upside. So there are 7 FOMC participants who are forecasting at least 200 bps of a hike this year, which means there will have to be at least 150 bps hike. While this is a very hawkish message, the risks are still somewhat to the upside and some of their forecasts are also skewed towards tighter labour markets, tighter product markets which means more inflation and potentially more rate hikes,” he said.

Abhilash Narayan of Standard Chartered agreed with Bhave that there is a room currently for equities to perform.

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He said, “We do expect the global economy to stabilise and recover given the shocks that we have seen in the last few weeks. We think that stronger investor sentiment will lead to some outflows from US assets into European and emerging market assets as the year progresses.”

What is the road ahead for the Indian equities in the near term? The Indian market has outperformed the US market since the start of the year.

He said, “When we think about a pullback in Indian markets, I think it is important to look at it from a global context. Yes, Indian markets have pulled back. It has still outperformed global equities and US equities since the start of the year. I see a war between two main factors for Indian equities; on one hand, you have strong earnings growth, so for the next 12 months we are looking at earnings growth in the region of 19-20 percent which is much higher than 7-8 percent earnings growth for the US and even 10-12 earnings for Chinese equities which is a major alternative for Indian equities in emerging market space. So Indian equities do benefit from strong earnings growth expectations.”

“We should see single-digit returns for Indian equities going forward; it will be volatile, but buying in dips still remains an attractive strategy for us,” said Narayan.

For the entire discussion, watch the accompanying video

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First Published:Mar 17, 2022 11:43 AM IST