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, may be 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 Feds 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 Outflow
Net Foreign Buying in Emerging Asia (Like Korea and Japan)
Month
May-16
Jun-16
Jul-16
Aug-16
Sep-16
ANNUAL
2016
(YTD)
Jul-05

India

Indonesia

Korea

Japan

380
555
1578
1357
400

-14
675
904
978
-240

86
-2920
683
-7459
3659
1487
1058
-4489
951 NA

6237

2638

9044

-49033

-5

-2704

-3597

-2566

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.

Disclaimer

The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal
views of the research team. Users are advised to use the data for the purpose of information and rely on their own judgment
while making investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022

Disclosure

Dynamic Equities Pvt. Ltd. is a member of NSE, BSE, MCX SX and a DP with NSDL & CDSL. It is also engaged in Investment
Advisory Services and Portfolio Management Services. Dynamic Commodities Pvt. Ltd., associate company, is a member of
MCX & NCDEX. We declare that our activities were neither suspended nor we have defaulted with any stock exchange
authority with whom we are registered. SEBI, Exchanges and Depositories have conducted the routine inspection and based
on their observations have issued advise letters or levied minor penalty on for certain operational deviations.
Answers to the Best of our knowledge and belief of Dynamic/ its Associates/ Research Analyst: DYNAMIC/its Associates/
Research Analyst/ his Relative:

Do not have any financial interest / any actual/beneficial ownership in the subject company.
Do not have any other material conflict of interest at the time of publication of the research report
Have not received any compensation from the subject company in the past twelve months
Have not managed or co-managed public offering of securities for the subject company.
Have not received any compensation for brokerage services or any products / services or any compensation or
other benefits from the subject company, nor engaged in market making activity for the subject company
Have not served as an officer, director or employee of the subject company

Article Written by
Nabarupa Kanjilal