After the US Fed rate increase, Indian stock markets have moved from relatively benign to extremely volatile over the past 24 hours. But trends point to a much better economic outlook for India in 2019.
The rate hike by the US Federal Reserve had its expected impact on markets across the world. Emerging markets are particularly vulnerable to interest rate hikes in US, as such a move incentivises investors to shift their focus to the US. This also means an indirect pain for the US, since weaker emerging markets also mean subdued demand for American products.
The Asian markets started in negative zone on Thursday and India was no exception. But by the end of the day, the Sensex and Nifty managed a relatively better recovery as compared to their counterparts. China’s Shanghai Composite Index, Hong Kong’s Hang Seng index and South Korea’s Kospi lost at least 1% of their value, but Nifty ended at just 0.14% less.
While this was initially seen as a sign of India being relatively unaffected, trading today has proved why market direction is so unpredictable. Sensex opened on Friday on a flat note but dropped by 400 points, hitting an intra-day low of 36,027 at 10:30 am. Nifty also fell by 114 points to 10,837.
This may be seen as a sign of panic to global cues, but over the next year, the outlook for India is looking significantly better at the moment. There are a number of reasons, starting with low oil prices, always good news for a major oil importer like India. U.S. West Texas Intermediate crude was down by US$ 2.29 to reach US$ 45.88 on Thursday, its lowest close since July 2017. Brent crude dropped by 5% to US$ 54.35, its lowest since mid-September 2017. The expectations of further RBI interest rate hikes are also low, due to low oil prices and retail inflation reaching a 13-month low in October.
The second major factor is the Government’s recapitalisation plans for public sector banks. According to recent news, the Department of Financial Services is planning to increase the recapitalisation amount by Rs 41,000 crore. Around 1.28 lakh crore has been pumped into public sector banks since October 2017.
Billionaire investor Mark Mobius projects that the Indian market is looking like a very good bet in 2019, despite the expected slowdown in developed markets. He states in an interview, “I believe that India could decouple (from developed market slowdown) and move forward in lieu of the incredible growth rate of the economy, one of the highest in the world and of course among the major countries now India stands up with China slowing down, India has a good chance to standout.” General Elections 2019, obviously are a cause for uncertainty, which is why investors will have to wait till the results are out to see the fundamentals actually play out.