India Stock Market Reaction if Fed starts to taper

By | December 6, 2013
US companies added 215,000 jobs in November, the most in a year, in a positive sign for the US economic recovery, the ADP National Employment report said on Wednesday.  The positive data increased expectations that the labor market could be strong enough for the Fed to start taper.
Today we have the GDP data and tomorrow we have the NFP number. Bulls of financial market wants a bad a bad macro data coming from US so that Fed can keep going with$85 billion-a-month bond-buying program.

All eyes are on this month’s Federal Open Market Committee meeting on 17-18 December where the US central bank may consider reducing its bond-buying program. Expectations that the Fed might start to taper its stimulus program have been a concern for the world since May. Earlier this year, terror over the unwinding of the Fed’s bond-buying program hit emerging markets hard, especially India and Indonesia, which have large account deficits. Indian stocks plummeted 13 percent from May to late August on taper concerns.

How will India Market react to Fed taper

Let see the fundamentals of India Economy.

  • The Indian economy grew at 4.8% well below 5% but more than market expectation.
  • Manufacturing expanded in November for the first time in four months.
  • India also reported a dramatic reduction in its current account deficit to $5.2 billion for the July through to September period, or 1.2 percent of GDP, down from $21.8 billion — or 5 percent — in the same period last year.
  • HSBC PMI data has been also showing green shoots.
  • The Reserve Bank of India (RBI) has taken steps to curb non-essential imports like gold. India has also benefited from stabilization in its currency, which has helped encourage foreign investors to return to the market.
  • Overseas investors have purchased a net $17.45 billion of Indian equities this year, the most in Asia after Japan.

 

So as seen from above points it shows the fundamentals of Indian economy are improving but we are still not out of woods so probability of an Year-end stock sell off on tapering fears remains at large.

2 thoughts on “India Stock Market Reaction if Fed starts to taper

  1. Somali Chakrabarti

    Some of the FII money will move out of the Indian markets once the taper starts. Taper will bring in liquidity crunch. Also as taper is an indication of economic recovery in US, US is likely to be be a more preferred investment destination, so investors may reshuffle some of their portfolios. In anticipation of that DIIs are likely pull out money from the markets. So after this election euphoria is over, if the taper talks start again and if the taper amount is greater than what is anticipated by the markets, then Indian markets could see some knee jerk reaction.

Leave a Reply