Strengthening labour market and firming up of economic activity allows US Fed to raise rates: Angel Broking

Views of Mr. Vaibhav Agrawal (Head of Research and ARQ):

"The US Fed's decision to raise key rates by 25 bps was in line with market expectations. As per the US Fed, the data for Feb indicates that labor market has continued to strengthen and that economic activity has continued to expand at a moderate peace. The undertone of the US Fed was however dovish as it expects two more hikes of 25 bps each during the calendar year, and accordingly the US bond yield reacted and fell to 2.5% from 2.6%.

The US Fed has raised the rates 3 times in the last 15 months, while with subsequent rate hikes could lead to rise in US bond yield, the strengthening of underling US economy is certainly good news for the global equities. Empirical evidence suggests that a rise in US interest not necessarily means negative for equities rather rate hikes indicates strengthening of economy and US being the largest importer a pickup in their economy would certainly be positive news for global economy. While a rise in interest rates in US in turn higher borrowing cost by US funds might lead to shift of some funds from emerging markets to US, the story for Indian market is little different. With the recent overwhelming success of BJP in state elections the reforms process should accelerate and this makes India an interesting investment destinations for overseas fund managers. Despite some moderation India continues to be the fastest growing large economy and that should lend support to Indian markets. So, we expect the move of domestic equity markets to be decided by local factors rather than global factors."

Source : Equity Bulls

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