Global Happenings May Force Indian Markets Remain Range Bound

The US Federal Reserve finally ending all the ongoing speculations paved the way for a 25 basis point increase in its policy rate. This was the first time that the Federal open Market Committee (FOMC) increased the interest rates in nearly last nine years. Almost all major global equity markets cheered the US rate hike as it gave confidence about the growth in the world’s largest economy. The rate hike decision signals the inherent strength of the US economy which augers well for the global markets, being a key consumer for products and services from other economies. The further path of the federal rate will depend on the economic outlook and incoming macro economic data.

Further, the crude oil prices continued to slide further downwards. During mid-December, oil prices declined to USD 34.05 per barrel and touched its 11-year low on December 22, 2015. Global markets are worried about the lower crude oil prices. However, the impact on the Indian equity markets will be positive as 80 per cent of the oil consumed is imported. On domestic front, India's exports continued its downward trend amidst weak global demand. Country's exports contracted more than 24.43 per cent to USD 20 billion in November and about 18.46 per cent to USD 174.3 billion in the April-November period to the corresponding period last year.

Meanwhile, the consumer price index (CPI) based retail inflation rose to 5.41 per cent in November 2015 as compared to 5 per cent in October 2015. On yearly basis, the CPI inflation rose from 3.27 per cent in November 2014 to 5.41 per cent in November 2015. The increase is in line with the Reserve Bank of India's (RBI) expectations of 5.4 percent increase. In November 2015 the consumer food price index (CFPI) rose by 6.07 per cent as compared to an increase of 5.25 per cent in October. The increase in CFPI is mainly driven by rise of prices of cereals and pulses particularly; both have a combined weight of 12 per cent. The continuous rise in food prices is on the back of poor monsoons in two consecutive years.

On global front, Fitch, the major rating agency in the world cut Brazil's sovereign credit rating to junk status. This is the second cut by Fitch this year after it downgraded Brazil to BBB- in October. The current downgrade left Brazil’s rating into junk territory at BB+ with a negative outlook. S&P also has the concern of the continuously increasing political challenges in Brazil and government's struggle to shore up fiscal accounts and its faltering economy.

Further, China is also facing economic slump in emerging economies. As compared to other countries, Indian economy can outperform the other emerging economies on the back of strong fundamentals and lower levels of crude oil which is the top import of India. However, the market will remain range bound over next couple of weeks as we are heading towards New Year holidays.