Global markets tumbled after minutes of the Federal Reserve's latest policy review meeting suggested an earlier-than-expected withdrawal of stimulus in the US to tackle the pandemic. Should investors on Dalal Street brace for impact on Friday?
According to the minutes of the Federal Open Market Committee's June meeting, Fed officials largely expect to cut their monthly bond buys later this year.
Wall Street's main indices fell over 1 percent while currencies hit multi-week lows against the US dollar, which hit a nine-month peak. The greenback outperformed most of its G10 and emerging market peers. The euro fell to its weakest against the US dollar since November 4.
A reduction in debt purchases is widely considered positive for the US dollar as it is expected to raise government bond yields.
Asian share markets dropped to their lowest levels recorded so far this year, taking weak cues from Wall Street. European shares hit a two-week trough, as the pan-European STOXX 600 index slid 1.9 percent.
The Indian equity market was shut for Muharram on Thursday, but SGX Nifty futures -- an early indicator of India's benchmark Nifty50 index -- tanked as much as 2 percent, signalling a steep gap-down opening on Dalal Street on Friday.
At 2:26 pm on Thursday, the SGX Nifty futures traded 320 points or 1.93 percent lower at 16,252.50.
Analysts say fears of early tapering of stimulus might hurt the sentiment in the Indian market, where benchmark indices are within 1 percent of their all-time highs registered this week.
So how is the Indian equity market expected to read the latest FOMC minutes?
"Given the inflation dynamics and the possibility of pre-Covid employment by March 2022, the tapering and subsequent rate hikes are likely to be faster than what most people are expecting. This combined with China's negative economic data and its business crackdown is a perfect storm for the markets," Independent adviser and market expert Sandip Sabharwal told CNBCTV18.com.
"Most emerging markets are now negative for 2021; some deeply negative. The high valuations in the EM basket are not sustainable," he said.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.63 percent to its lowest since December. S&P 500 futures fell 0.4 percent, indicating further weakness ahead on Wall Street.
Benchmark indices Sensex and Nifty50 are up 16.5 percent and 18.5 percent respectively so far this year. MSCI's world equity index has risen 14.4 percent during this period.
Some view any dip in the market as an opportunity to take fresh positions.
"The market can have some impact due to global cues. But any deep correction would be a chance to buy quality stocks," AK Prabhakar, Head of Research at IDBI Capital, told CNBCTV18.com.
Various officials were ready to taper in the coming months, while several others had a base case of waiting longer, according to the minutes. They commented that economic and financial conditions would likely warrant a reduction in the coming months.
Rahul Sharma, Co-Founder of Equity99, said the Fed has hinted at an early decision on the withdrawal of stimulus, which "should come around in the starting of 2022. This will surely impact market sentiments as it is already witnessing the fear of correction... Going by the current situation, a correction of 2-3 percent is expected on the main indices."
The markets were not expecting a clear communication on imminent tapering from the US central bank, added Sabharwal.
Expecting major profit booking in the Indian market on Friday, Sharma said: "We have to watch global cues till the end of the day to have a correct view for the market."
Analysts now await the annual Jackson Hole symposium in Wyoming, which runs from August 26 to 28, for more clarity on the Fed's policy going forward.
First Published: Aug 19, 2021 4:30 PM IST
