The market is reacting to the Federal Reserve’s Monetary Policy announcement. The Fed is keen on doing whatever it takes to bring inflation down to 2%. This commitment to raising rates (evidenced in the Fed’s dot plot) well into 2023 spooked US markets, and now the contagion is spreading.
It has been a tough year for US indices – the S&P500 and the NASDAQ peaked in January. Year to date, the S&P 500 fell 23%, while the NASDAQ lost 15%. Meanwhile, Indian indices have shown more resilience, dropping only 5% from their January highs. However, the rupee has depreciated 9.2% this year. While the Indian investor remains comfortable in the Indian markets, global investors are reconsidering. In the days after the Fed’s announcement, FII and FPI have taken out 5,400 Crores from Indian markets.
The million-dollar question is when this trend will reverse. Clearly, flows will dictate the direction of markets. Until FIIs return or stop the outflows, Indian markets will be volatile. While the ride may be rough, this volatility will give investors several opportunities to invest. How you make use of the volatility is how the story flows.