How Indian stock markets could react on Monday after Fed chief’s comments sparked a sell-off

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The US Federal Reserve has waged an aggressive campaign to raise interest rates and its Chairman Jerome Powell’s speech at the Jackson Hole gathering of global monetary policymakers made it clear that its fight against inflation is not over, dashing hopes on Wall Street that the Fed might soon ease on high interest rates.

U.S. indices fell after Powell said the Fed will likely have to keep interest rates high enough to slow the economy for a while in its effort to bring inflation under control. Weak global signals could put a temporary pause in the Indian stock market’s recovery, analysts said.

“Nifty began a correction last week after six straight weeks of gain and this correction may continue into next week as there is a strong sell off in the US market following hawkish comments from Fed Chairman Jerome Powell. global markets will be the dominant factor this week, while on the home front, India’s GDP figures and August auto sales figures will be important factors. will also keep an eye on developments in crude oil prices, the dollar index and U.S. bond yields,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

The upcoming trading week should be filled with activity such as India’s GDP growth rate and the S&P Global Manufacturing PMI, the start of the new F&O series of September and August auto sales.

“More or less, Powell’s statements were what the market expected. After the first sharp drop in US equity markets and a rise in yields, the trend reversed a bit, stabilizing markets and yields. We believe this makes incoming US economic data all the more important in charting the US Fed’s future course of action,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

The only new insight that came out of that speech was the Fed’s acceptance that economic growth could be hurt by inflation, said Aishvarya Dadheech, fund manager, Ambit Asset Management.

“Nevertheless, the market was already discounting this hike and not expecting any reversal of its normalization policy any time soon. Following the Fed’s decision, the RBI will most likely proceed with another rate hike at its next MPC meeting, before just seeing the impact on economic indicators.The Indian market has largely ignored this hike by the RBI and the Fed.What matters now, more than the rate hikes, is the reduction of bloated balance sheets central banks,” Dadheech added.

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