Ten points explaining what the US Fed said and how it affects India

Jan 27, 2022

By: Sriram Iyer

US interest rates will start rising from March 2022 because inflation in America is at a 40-year high.

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The market knew this already. What’s new? The US central bank used the word ‘nimble’...

...instead of ‘gradual’ to describe oncoming rate hikes.

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That would mean that the interest rate hikes would be faster...

...than it previously wanted it to be i.e., 3 rate hikes in 2022.

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Faster rate hikes in the US will mean that the US dollar..

...will gain faster against other currencies including the rupee.

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If the dollar is expected to get stronger, foreign portfolio investors...

...are expected to pull more money out of emerging markets like India.

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The risk appetite for investors will go down further and...

...that would affect all risky assets like equities and cryptocurrencies.

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Once that became certain, markets started pricing in outflow of investments and...

...the Sensex fell nearly a percent and a half.

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A weaker rupee will lead to outflows of dollars in India and cost of crude oil and...

...other imported essentials will go up for Indians.

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The price of Brent Crude, which is most of what India imports,...

...has already hit $90 a barrel before cooling off a bit.

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However, a weaker rupee is good for exporters who earn in dollars, e.g.,...

...information technology (IT) services companies like TCS, Infosys and Wipro.

Credit: Infosys

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