Relief rally seen if US Fed postpones hike

stockEquity markets across the globe, including and particularly emerging markets, will see a relief rally if the US Federal Reserve puts off a rate hike today, said Rohit Gadia, Founder & CEO, CapitalVia Global Research.

US Fed will conclude its policy meet today and give clarity on the much debated rate hike. Indian markets are shut today, but will react on Friday.

“If they don’t hike rate, it’s an admission that Wall Street threatens to reverse the recovery on Main Street,” he said.

“It will lead to a short-term relief rally on Wall Street and relatively positive for Emerging Markets, commodities and resources, as it unwinds the higher US growth-rates-dollar narrative. It will be positive for higher-yielding assets and will be positive for growth value, as the Fed is confirming the deflationary recovery.”

But If the US Fed increases the interest rates on today then this has a spillover effect on emerging market currencies including India, he added.

“The rupee could depreciate between 5 to 10 per cent on a sustained basis,” he said.

Asset allocation toward “strong dollar” & “Fed tightening plays” will harden, with the exception that value will likely outperform growth, he added.

“If markets open gap up on Friday Investors should wait for the market to settle down for at least one hour and start buying strong counters whose trend is up or it would be better to wait for first half and buy in latter half of trading session. If markets open gap down : Investors should wait for the market to settle down for at least one hour and start selling the weak counters whose trend is down.”