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• Indian markets react well to Fed rate cut but for how long?

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  Amarendra Dhiraj    Group moderator

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  Indian markets react well to Fed rate cut but for how long?

  The Indian markets reacted well to the Fed rate cuts in the past. Historical evidence shows that the previous Fed rate cuts have proved positive for Indian equities over 12-24 months period with the exception of the tech bubble burst and the subsequent collapse. Strong economic growth and domestic influence have countered earnings degrowth case.
  
  Fed last cut rates in 2003, which was the last of the string of cuts, which started in 2001 and in all the 4 instances, the Sensex has performed splendidly. Linkages of Indian interest rates to global trends have been rising since mid-90s and Fed rate cut could well put pressure on RBI to cut rates.
  
  In January 2001, which was the tech bubble collapse period, the Sensex went down by 17%. In September 1998 it went up by 50% whereas in July 1995 and June 1989 the Sensex went up by 16.5% and 9.5% over 12 month period respectively.
  
  Arguments for rates cuts happen to be the moderation of inflation and easing of credit growth. Infact there has been a convergence of deposit growth rates with credit growth rates. So there are chances that RBI may look for a rate cut in their next meeting
  This post was modified on 19 Sep 2007 at 10:22 am.
  • 19 Sep 2007, 10:18 am
  Amarendra Dhiraj wrote: > The Indian markets reacted well to the Fed rate cuts in the past. > Historical evidence shows that the previous Fed rate cuts have proved > positive for Indian equities over 12-24 months period with the > exception of the tech bubble burst and the subsequent collapse. > Strong economic growth and domestic influence have countered earnings > degrowth case. > > Fed last cut rates in 2003, which was the last of the string of cuts, > which started in 2001 and in all the 4 instances, the Sensex has > performed splendidly. Linkages of Indian interest rates to global > trends have been rising since mid-90s and Fed rate cut could well put > pressure on RBI to cut rates. > > In January 2001, which was the tech bubble collapse period, the > Sensex went down by 17%. In September 1998 it went up by 50% whereas > in July 1995 and June 1989 the Sensex went up by 16.5% and 9.5% over > 12 month period respectively. > > Arguments for rates cuts happen to be the moderation of inflation > and easing of credit growth. Infact there has been a convergence of > deposit growth rates with credit growth rates. So there are chances > that RBI may look for a rate cut in their next meeting