Fed Chairman Ben Bernanke has managed to please the markets with a 25 bps hike in interest rates last night. For now his statements also suggest that the Fed is not very keen on increasing rates so soon, it would depend on economic growth and inflation.
Experts also see a sense of stability in the Fed statements regarding rate hikes ahead.
Fed statements positive for markets
Upendra Kulkarni of Fortress Financial Services says that the Fed's language has toned down this time, and our markets are benefiting because of this.
He says, "There is hope that Fed is stabilising now, therefore the markets have taken its statements quite positively. However, now it depends on how oil prices and interest rates move up. If they move up a lot, Fed would have no choice but to hike rates."
Andrew Holland of DSP Merrill Lynch believes that markets could be headed towards their earlier highs.
He says, "One could see the markets move towards the highs of 12,000 if momentum continues. The worst could be recession in the US, which means a global slowdown, which means commodity prices coming off. We still probably got to see it play out."
He reiterates that for the short-term, it is a great trading market, it is volatile but one can still make money.
"I am not sure if earnings growth will continue, not just in India but globally, and that is when you will be able to sit back and say what are the growth rates. I still think we are some months away from that. That is where we are, that is where the markets are confused at the moment and will be led by the data from US. One could be buying for one day and then selling 3-4% the next day. It is not going to be an easy market for the next few months."
Auto, banking and cyclicals to be hit
Though experts feel that no sector will take a big hit, but sectors that are vulnerable to interest rates hikes, such as auto, banking and cyclicals will get impacted.
Holland says, "Anything to do with commodity price as an input cost, will start seeing a squeeze in earnings. I do not think companies are able to pass that on. Companies are really talking about increase in prices to try and overcome that. We will see more and more evidence of this over the next few weeks."
Kulkarni says, "We feel that the markets will remain positively rangebound, there is no bearish trend, but sectors like banking and auto will take a slight hit. While these sectors won't be necessarily down today, the yeild curve and balance sheets will be hit."
He adds that oil prices and inflation will confirm the rate hike trend ahead.
While, autos may get impacted negatively; Technical analyst, E Mathew says that among autos, Tata Motors seems the best.
He says, "Of the lot, Tata Motors looks very interesting. We have got some sort of resistance, in fact, quite a tough resistance around Rs 860-870 region. I do feel that in this rally where we are looking at 10,700 on Sensex and around 3250 on the Nifty, Tata Motors could certainly reach to around Rs 860-870 levels, which is a possibility."
IT, FMCG, auto components to benefit
Kulkarni believes that IT and auto components will be positive now.
He says, "While there will be selling at any rally in the markets now, I feel IT and auto components will be positive now. IT is dependant on the rupee and dollar rate etc, so it will benefit if the dollar does well. I am positive on auto components because it is a sector that is expanding by way of tie-ups and acquisitions. My all time favourite is RIL and it continues to be so."
Holland is also positive on IT, as well as on FMCG.
He says, "I think IT should be okay. The fears now would be regarding wage inflation, training costs, to maintain and keep attrition rates low. I think that will be one of the fears they share in this quarter. I also think the depreciation of rupee is going to help and we need to look through that into the core results. In FMCG, we have to look at the monsoon and what that might bring. The worst is over in terms of these companies and we will start to see price increase going forward."
Therefore, while the Fed has provided relief to the markets, it is the broader picture in-terms of oil price and inflation, which need to be closely watched, in order to infer the actions of Fed in future.
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