Interest rates are a great leveller. They always set the trends of the equity markets. But we have two sets of rates to contend with, domestic and global rates.  Domestic interest rate trends are constantly shifting and puzzling. Just when the trend seems set to rise, something happens which softens the trend. Signalling by the government also plays its part in softening the trend just when rates harden up. The absence of a guidance only makes matters worse.  But,  US interest rates are clearly heading north. We are guided on both the trajectory and extent of rate hikes. The guidance is unambiguous.

Markets constantly play on rate expectations and actual impact. When expectations are more benign than impact, markets tend to gain. When the actual moves hurt more than the markets anticipate, we are going to be in for a negative surprise. While the US markets are not likely to surprise, the domestic debt markets never fail to surprise the equity investor. We will have more worries coming our way from the domestic macros, rising US interest rates, and the debt markets in 2018. If and when the markets climb the dual wall of worry, it could end up being a huge positive surprise for equities. But that could still be a long way off.

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