How Indian stock markets may react on Monday after Fed chief comments spark selloff

The US Federal Reserve has been on an aggressive campaign to raise interest rates and its Chair 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 Wall Street’s hopes that Fed may soon ease up on high interest rates.

US indices tumbled after Powell said the Fed will likely need to keep interest rates high enough to slow the economy for some time in its effort to tame inflation. The weak global cues may put a temporary break to rally in the Indian stock market, as per analysts.

“Nifty started a correction last week after six straight weeks of gain and this correction may continue in the coming week because there is a sharp sell-off in the US market after hawkish commentary by Fed Chairman Jerome Powell. The direction of global markets will be the dominant factor for this week while on the domestic front, India's GDP numbers and August month auto sales numbers will be important factors. Apart from this, the market will also have an eye on movement in crude oil prices, the dollar index, and US bond yields,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

The upcoming trading week is expected to be jam-packed with activities that include India’s GDP growth rate and S&P Global Manufacturing PMI, start of new F&O series of September and August auto sales.

“More or less, Powell's statements were what the market was expecting. After the initial knee-jerk drop in stock markets in the US and an increase in yields, the movement reversed a bit, stabilizing the markets and yield. We believe this makes the incoming US economic data all the more important to chart the future US Fed course of action,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

Only new insight which came out of this speech was the Fed acceptance that economic growth might be compromised over inflation, said Aishvarya Dadheech, Fund Manager, Ambit Asset Management. 

"Nevertheless, the market was already discounting this hike and was not expecting any reversal in their policy normalization stance any time soon. After the Fed move, the RBI will most likely take one another rate hike in their next MPC meet, before settling to see the impact on economic indicators. The Indian market has largely discounted this hike by RBI and the Fed. What matters now, more than rate hikes, is the tapering of central banks' bloated balance-sheets," Dadheech added.