The much-anticipated Federal Open Market Committee (FOMC) rate hike decision did indeed dominate last week’s proceedings. As recent US jobs data had given shown improvement, market had long come to expect that the Federal Reserve would take it as signal for raising rates, which they did after FOMC’s monetary policy meeting on December 15-16. While the raising of rates was very much in line with expectations, the comments that implied that further rate hikes would be moderately placed pacified nerves, leading to extension to the relief rally that had begun earlier in the week itself. Thus, it is fair to say that sentiments, rather than hard facts, sparked last week’s moves.
Running up to the event, FIIs have been on a selling spree in Indian equities, dragging Nifty by nearly 5% in December alone.
The impasse in Parliament was also in equal measure responsible for the lacklustre moves during the week. Having missed the opportunity to pass the crucial GST Bill in the monsoon session, the winter session was followed by investors with subdued expectations. The inclination of the government to scrap the additional 1% levy under the proposed GST regime brought brief cheers to the market, but with little time before the session winds up on December 23, the government looks to have given up, in the face of the stiff opposition put up by the Opposition (sic).
Sector-specific news was also tempering market moods. IT stocks, which are currently facing the pressure of reduced H-1B visas, were further put under duress, after the US Congress decided to impose special fee on certain categories of H-1B and L-1 visas.
Meanwhile, a few frontline IT companies have also acknowledged the impact of disruption of business due to Chennai floods, and have lowered revenue guidance as a result. Auto sector was also under pressure as clamp down on diesel engines as part of drastic measures taken to curb pollution in Delhi, stands the chance of being expanded to other cities as well, in part measure, at least.
Last Friday saw Asian markets rising briefly after Bank of Japan announced that it will expand its easing measures. However, they were forced to end lower by falling European as well as US markets. The cash volumes across NSE and BSE have also been thin last week, hovering around the 16k-crore mark as compared to the 19k-crore levels seen in the month. Such thin volumes have given way to wild swings last week, but with year-end celebrations approaching a crescendo, market participation may be subdued, leading to narrower range, in the next couple of weeks.
Having said that, with FOMC rate decision out of the way for now, the improved clarity would augur well for the market, and the focus would now be back on the potential for monetary easing again by the RBI. With latest data showing that food inflation continues to be quite stubbornly stiff, an inter-policy rate cut is less expected, but such hopes should under pin sentiments in the short term.