Fed meeting outcome today: 3 scenarios that can play out for Nifty bulls

A rebound in global markets did bring some relief to domestic equities on Tuesday, but investors remain apprehensive about what US Federal Reserve Chairman Jerome Powell will deliver later today.

The expectation is of a 25-basis-point hike in interest rates by the Fed at the end of its 2-day meeting, but such an announcement is unlikely to result in fireworks on the Street, experts said.

It’s a kind of a Catch-22 situation for the Fed, as inflation remains a sign of worry even though it has come off its peak, while the current crisis in the banking system seems to be just at the tip of an iceberg.

So, while a rate hike is essential to bring inflation closer to the Fed’s 2% target, it would mean adding to the liquidity woes the banking system is currently experiencing.

“The credit tightening is likely to weigh on US growth, further intensifying the impact of a rise in interest rates and ongoing quantitative tightening done by the US Fed,” said Shobhit Mehrotra, head - fixed income, HDFC AMC.

A section of the market is hoping for the Fed to pause rate hikes, but most have ruled out a 50-bps hike.

“I think more than the rate action, investors will look forward to hearing Powell’s stance on inflation. If the Fed indicates that it will postpone its plan of meeting the 2% inflation target in 2024 rather than 2023, then it will be a big relief for the markets,” said Sunil Damania, chief investment officer, MarketsMojo.

“The banking sector needs some support, some sort of vitamin. So, whether Powell will be flexible on the inflation target or stick to his guidance will be important to watch out for,” he added.

If the Fed gives the Street a rude shock with a 50 bps hike, then the market is likely to see a sharp correction, but the dips can be used to invest in domestic-oriented companies’ stocks, according to Shrikant Chouhan of Kotak Securities.

“While there could be short-term headwinds to markets due to the global crisis, we remain bullish on the India growth story. So, in case of a further correction, I would recommend investing in domestic-oriented companies rather than export-linked ones,” Chouhan said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)