US Fed: India safe but for how long?

US Fed: India safe but for how long?Thursday, 19 March 2015 - 11:00am IST | Place: Mumbai | Agency: dna webdesk

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  Shubhashish

This capital flight could also impact currency markets and rupee might lose some of its value like it did a couple of years ago.

• Representational illustration File Photo dna Research & Archives

The much-awaited statement from US federal Reserve is here and the emerging markets globally are rejoicing. Dollar was weakened against global currencies (Rupee opened 34 paise stronger) and thestock markets are elated (BSE and NSEjumped over 1% on Thursday morning). 

The press release of US Federal Reserve stated, "The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." What this effectively means is that the Fed is not raising rates at the moment but is not averse to the idea in near future. 

It said, "When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%." 

What elated the stock markets globally is Fed's statement that it might still keep rates unchanged even after employment and inflation are in comfort zones. The statement read, "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." 

But what came as a music to ears of stock markets was the announcement that a rate hike in April meeting also remains unlikely. 

Global stock markets, especially emerging markets (incluing India), were expecting a huge sell-off from foreign investors if the US Fed signalled rate hike. However, as its possibility is ruled at the moment, the markets cheered the move. 

The last time Fed raised rates was in 2006. 

What this means for India? 

Raghuram Rajan, governor, Reserve Bank of India:

Even though Indian stock markets remain in a precarious situation as foreign money dictates the direction of the market, Raghuram Rajan, governor, Reserve Bank of India (RBI) remained confident. 

Even though he did not rule out the possibility of volatility in the Indian stock markets if US indeed raised rates, he assured that the country is fully prepared to deal with any situation arising out of US Fed's statement. 

Couple of years ago, when the US Fed signalled tapering off of its quantitive easing program, dollars flew from the stock markets sending the markets in a tizzy and eroding rupee's value against the dollar. 

However, India's current account deficit (CAD) at that time was over 4% and forex reserves to tackle the capital flight were low. 

This time around, India's CAD is firmly in control and is expected to be 1.2% of GDP in the current fiscal and RBI has built up record dollar reserves of $337.8 billion. 

Christine Lagarde, chief, International Monetary Fund (IMF): 

Lagarde, who was in India on a two-day tour earlier this week said that India is a bright spot in the gloomy global economy. She said that emerging markets including India must prepare itself to risks arising out of the US Fed rate hike. 

She warned that US might begin to unwind its monetary stimulus later this year and it might cause volatility in the stock markets giving rise to stability issues in the emerging market economies. 

She added that the central banks must intervene with foreign exchange interventions and supporting domestic economy with liquidity push. 

Lagarde said that Indian companies with high leverage, especially in dollar loans, are likely to get affected when US Fed begins to hike rates. 

How will US rate hike affect India: 

US rate hike would mean that foreign money would leave stock markets in India and go back home for safer avenues. This would bring volatility in the Indian markets.

This capital flight could also impact currency markets and rupee might lose some of its value like it did a couple of years ago.

Rupee strenghtened today morning against dollar simply because US Fed ruled out rate hike for April at this weakened dollar. An opposite effect will happen when rate hike actually takes place and money flies back to US from Indian markets.

Moreoever, Indian companies don't have proper hedging strategies in place as they expect rupee dollar to be in 62-63 zone. Any fall in rupee is likely to affect their balance-sheets on the back of currency losses.

India is safe from the volatility at the moment but any rate hike by the US Fed could cause a ripple affect beginning from the stock markets to impacting the profits of companies because of fall in rupee's value against the dollar.

India's external debt, which is ballooning at the moment, would increase further and falling exports would make the matters worse. 

India's exports during April-February period stood at $284 billion as against imports of $411 billion. Export growth, earning precious dollars, continues to be muted and is only helped by a lower import bill becaue of lower oil prices. 

Minister of State for Commerce and Industry Nirmala Sitharaman said that exports are declining because of muted global demand, stagnation and deflation problems in European Union.

http://www.dnaindia.com/money/report-us-fed-india-safe-but-for-how-long-2070132

US-FED-RATE HIKE WORRIES...

Why US interest rate hikes are a problem for emerging markets

The US Fed on Wednesday said it would watch economic parameters before raising rates, but suggested one could come as early as June

Shishir Asthana  |  Mumbai  

March 19, 2015 Last Updated at 08:36 IST

Markets have been a bit lacklustre and in a state of fear on account of two main reasons. The first is the passage of the Land Acquisition Bill by Indian Parliament and the second is what the Federal Reserve in the USA would do in terms of interest rates. Parliament’s Budget session is still on and chances are that the government will have to call for a joint session of both houses to see the bill through. However, it is the development in the US that will have an immediate impact on the markets.

Much to the relief of markets across the world, the US Fed late on Wednesday night said it would hold on for a little longer before considering raising rates, and would wait for both economic growth and inflation to stabilise. Experts suggest an interest rate might come only in June 2015. 

India is well prepared to deal with any rate hike by the US Federal Reserve IMF chief Christine Lagarde said on Monday. RBI Governor Raghuram Rajan, himself a former chief economist of IMF, had also said earlier that there would be some volatility in emerging markets once the Fed decided to raise interest rates, but India is well prepared deal with the market volatility.

The mere fact that IMF chief and the central bank governor had to mention US interest rates suggests they were trying to pacify the markets from an expected turmoil. So how big is the US interest rate impact that sends global market in a tizzy every time the Fed meets?

We walk you through the impact of a hike in interest rate in USA in the Indian markets.

What does a rising interest rate in USA symbolise?

The end of easy money. Since the start of the financial meltdown crisis triggered by the collapse of Lehman Brothers, the US Federal Reserve has resorted to various measures to pump in liquidity in the economy. Three rounds of so-called Quantitative Easing (QE) failed to bring in the required impact on the economy. Though the Fed has withdrawn the QEs, they kept the ‘easy money’ tap open by keeping interest rates near zero. Money was available for free to conduct businesses in the USA. But most of the money was channelized into equity markets and that too in riskier assets like equities. Unlike previous bull runs, the one after 2008 saw money moving into equity markets only. None of the other asset classes like commodities attracted this money. So if interest rates are increased, access to this money will be costly. Chances are that inflow of funds will reverse if interest rates are increased.

Will only equity markets bear the brunt?

Any rise in interest rate has a direct impact on the country‘s currency. Rise of interest rate in the USA will strengthen the dollar. A strong dollar attracts money from other markets causing a ripple effect. While mentioning that India is prepared from an interest rate hike in the USA, Lagarde warned that a strengthening dollar will have a significant impact on Indian financial system.

Which markets are expected to be the worst affected?

Since the time of withdrawal of QEs, to every time Fed sneezes, emerging markets catch a cold. Being at the long end of the investment stick, the first markets from where allocations are withdrawn or reduced are the emerging markets. The recent selloff in emerging markets is on account of withdrawal of money from emerging markets’ equity traded funds (ETF). India however, is one of the strongest markets and most preferred ones in the emerging market basket.

What does history tell us about US interest rate hikes?

There have been 16 cycles since World War II during which the Fed has boosted interest rates. The risks are higher when the Fed first raises rates. During the six months before or after the first rate hike, the S&P 500 experience a decline of 5% or more 13 times. In other words, markets were hit negatively more than 80% of the time. Any hike in interest rate, if it happens will signal the end of the bond bull market that dates all the way back to 1981.

How bad is it for Indian market?

FII investment in Indian equities for the current year stood at over Rs 93,000 crore. In the debt market investment stood at over Rs 150,000 crore. It is the ‘hot money’ or the money that is invested in Indian equity markets for short term purposes that are at the risk of leaving the country. But if dollar strengthens against rupee, chances are money from the debt market will also leave Indian shores. Reserve Bank of India is on the process of reducing interest rates but if USA is increasing rates, the arbitrage opportunity will diminish, that is the biggest exit door that will open up if interest rates rise. RBI will have to use its forex reserve wisely to prevent the volatility in the rupee.

https://www.blogger.com/blogger.g?blogID=6412567908117008384#editor/target=post;postID=5712009352177399234

THE ART OF TRADING IN STOCK MARKETS

 IN EVERY ASPECT OF LIFE, THERE IS SOME ART PART AND SOME SCIENCE PART THAT EXISTS IN OUR UNIVERSE. THE STOCK MARKETS ARE NO DIFFERENT FROM THIS. THE ART OF TRADING IS GENERALLY LESS DISCUSSED AS WE TEND TO FOCUS ON THE SCIENCE PART HEAVILY BY ANALYZING TECHNICAL CHARTS AND OTHER MOMENTUM INDICATORS. DESPITE OF THROUGH UNDERSTANDING & COMMAND OVER THE CHARTS, OTHER TECHNICALS LIKE ELLIOT WAVE, DOW THEORY AND FABINOCCI NUMBERS ETC., STILL TRADERS TEND MISS THE SUCCESS DUE TO LACK OF "THE ART OF TRADING" QUALITIES!. THE ART OF TRADING IS BASICALLY FOCUSES ON THE PSYCHOLOGICAL ASPECTS OF TRADERS/INVESTORS MIND SET.

NOVICE MEMBERS,NEW TO MARKETS FLOCK AROUND WITH A PRE-CONCEIVED NOTIONS, THINK AN EASY OPERATION LIKE SIMPLE “BUYING& SELLING” TO EARN MONEY FROM THE MARKETS. MANY PARTICIPANTS WITH HARD CORE REAL EXPERIENCE MAY DIFFER WITH THESE PRESUMPTIONS. THE ATTRACTION AND EXCITEMENT STORED IN THE POSITION HOLDING DURING THE DAY/COUPLE OF DAYS, ALLOWS MANY TO TAKE PART IN MARKETS, LATER NOTICE THEIR INABILITY TO MAKE MONEY. THE SEASONED PEOPLE WHO RECOGNIZED THESE FAILURES, AND THOSE WHO ARE ADAPTABLE TO CHANGE TEND TO GAIN BY NOT COMMITTING THE AGEOLD MISTAKES!.

THE STOCK MARKET BUSINESS BASIC PRINCIPLES BASED ON WHO OPENS "THE SHOP”,WHO COMMANDS WHOM IS WHAT MATTERS ULTIMATELY.THE OPERATORS OR THE MARKET MAKERS/WELL INFORMED PEOPLE/INSTITUTIONS TEND TO CREATE A SITUATION WHERE BY THE SMALL/RETAIL INVESTOR, TRADERS/POSITIONAL TRADERS GET TRAPPED. THE STOCK MARKET OPERATIONS EXIST ON THE VERY BASIC PRINCIPLES OF “ENTICE & ENCASH- EACH TIME AND EVERY TIME”.

EVERY DAY, MARKETS ACROSS THE GLOBE, "OPEN & CLOSE" AT PARTICULAR TIME AS SCHEDULED AND ARE BEING REGULATED BY THEIR AUTHORITIES. THE UNDERLING SECRET IS WHO MAKES THE OPENING RATES AT A PRICE HIGHER OR LOWER THAN THEIR EARLIER CLOSING PRICES, “DEFINITELY NOT THE RETAIL INVESTORS” FOR SURE. HERE THE CATCH, THE WELL INFORMED/MARKET MAKER WITH HUGE STOCK AND CASH AT DISPOSAL “OPENS THE SHOP”. THEN ONE CAN RECOGNIZE WHO IS THE CUSTOMER AND WHO IS THE OWNER. IN THIS PRINCIPLE, NOW IT IS ANYBODY’S GUESS THAT WHO RULES & MAKE PROFITS.

THEN, HOW TO GET SUCCESS AND PROFITS?!, THE RULE IS-BECOME “THE SHOP-OWNER”, SIMPLY "THINK LIKE AN OPERATOR & OPERATE LIKE OPERATOR". THOUGH IT LOOKS SURPRISINGLY FUNNY BUT THE VERY FACT IS THAT THERE IS NO OPTION BUT TO JOIN THEM.

IN PRINCIPLE, EVERY BUYER, IS AN INVESTOR, HAS THE RIGHT TO BE CALLED AS OWNER OF THE STOCK, THEN WHY INVESTORS SELL FOR A LOSS?, BECAUSE HE OR SHE “TRADES”. IN FACT, THE LOSING TRADES ARE EITHER ASSOCIATED WITH FEAR OF LOSS OR VENGEANCE. MOST OF THE TIMES, TRADING IS ALSO DONE BY THESE TRADERS ON ADVICE OR TIPS OFFERED/PROVIDED,TAKE HUGE POSITIONS WITHOUT PROPER STUDY/INSUFFICIENT STUDY, BOOK LOSS FOR WANT OF MONEY OR FEAR OF FURTHER LOSS, THEN CURSE THEIR FATE RATHER THAN THEIR "IGNORANCE OF OPERATION".

THE LOSERS SELDOM FIND TIME TO REALIZE THE VERY FACT THAT THEY ARE BETTING ON SOMEBODY'S ADVICE AND DREAMING OF SUCCESS NOT ON THEIR MERITS BUT ON RELYING/DEPENDENCY. STOCK TRADING IS DEFINITELY AN ART TO GRAB THE AVAILABLE OPPORTUNITY IN A PARTICULAR STOCK/INDEX, GAIN FROM THE POSITIONS. UNLESS THE TRADERS UNDERSTAND THE GAME PLAN BEHIND THE SCENES, IT IS VERY DIFFICULT TO MAKE MONEY FROM DAY-TRADING/SWING TRADE.

SO, DEVELOPED CERTAIN PRINCIPLES WITH MY EXPERIENCE- AAA (TRIPLE “A”) AND UJWAL-DEEP.

THESE PRINCIPLES ENHANCES THE SUCCESS RATE FOR SURE…. WILL DISCUSS SOONER…!!!