Will FED spoil the bull run party for Nifty?

The year 2016 is the election year for the United States as the 58th quadrennial U.S. Presidential Election is all set to happen in the month of November. The whole world is eager to watch this event.In the last 30 years, we have never seen the FED increasing the interest rates right before the elections, therefore, the Federal Reserve is very unlikely to raise short-term interest rates at its policy meeting this week. However, one can very well expect Federal Bank to be very vocal about the rate hike and could send signals about where borrowing costs are headed in the months and years to come.

What to expect from the FED Meets this Year?The FED meets for three more times this year- one being tonight, the second on first of November and the third time in the middle of December.The first two dates are held before the Presidential election, which reduces the probability of any rate hikes.The most probable date could be in the middle of December, by which the President would already have been elected and it will be the most appropriate time as the markets will fully discount the rate hike.

Fed officials are torn between the appropriateness of the rate hike. On one hand we have official like Eric Rosengren from Boston and John Williams from San Francisco in favour of the rate hike, on the other hand, we have governor Lael Brainard pointing to sluggish inflation as a reason to hold off. Internal sources have reasons to believe that Ms. Yellen may hold rates steady this week however using the statement or her press conference to raise expectations for a move later this year, maybe in December.

Where are we Headed?As a result of the twin Data, where inflation is at 2 per cent and the jobless rate is within the Fed’s estimated range (between 4.7 per cent and 5 per cent) for full employment, one can expect to see the Federal Reserve being loud about interest rate hike in the near future (probably in December), if not immediately.

What will India Do?India is an emerging market. As seen in the past, when FED increased their interest rate, India reported heavy outflow of funds in the form of equity and debt. Moreover, as we head towards the end of the financial year, we are likely to see possible changes in the policies of the Reserve Bank of India. Also, GAAR will come in to full effect from April 2017, which is expected to put further pressure on the Indian equities.According to a recent study, India is one of the expensive markets among the emerging economies. A Bloomberg report shows Indian benchmark Index Nifty is trading 18.38 times on a one-year forward trading basis against the MSCI Emerging Market index that is trading 13 times and the MSCI Asia Pacific Ex-Japan index trading at 14.12 times.

Money OutflowNet Foreign Buying in Emerging Asia (Like Korea and Japan)

At present Nifty share price is trading at 8811. Indian markets could be tricky for the investors. The benchmark index Nifty could see an upper cap of 9000 following S&P 500 which could reach as high as 2190.

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