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Mumbai: Indian shares may see some weakness on Thursday, tracking their subdued Asian peers after the US Federal Reserve hiked interest rates on Wednesday as widely expected.
The US central bank lifted the benchmark lending rate by a quarter percentage point, its second quarter-point hike this year, and said it would begin cutting its huge holdings of bonds and securities this year. Dollar rose following the announcement, while stocks reeled under pressure worldwide, as risk was seen coming off the table.
“Fed hiked rates by quarter percentage which was on expected lines. However, the target of reducing the balance sheet size, also came along, which implies the dollar will strengthen from here,” said Vaibhav Sanghavi, co-chief executive officer of Avendus Capital Public Markets Alternative Strategies LLP
“This impacts non-dollar denominated assets such as commodities and emerging market currencies and equities. Indian shares see a downtick to begin with on Thursday,” added Sanghavi.
“I think the announcement is very much on expected lines. The balance sheet reduction was also expected. There might be temporary reaction in the Indian and other emerging markets, but that will be shrugged off soon by investors,” said Vikas Khemani, CEO of Edelweiss Securities Ltd
“We need to keep an eye on how (US) inflation pans out, to see the next course of action by Fed,” added Khemani
Adding to the woes was a slide in crude oil prices, triggered by a build-up in gasoline stocks. US oil futures slid 3.5% in Wednesday trade in the US.
On the domestic front, all eyes are on how monsoon progresses, and the developments around implementation of the goods and services tax (GST). The implementation of tax is likely to disrupt economic growth in the near term, as businesses adjust to the biggest tax reform in the country since Independence.
Reuters contributed to the story.