ATM :: NaMo, Ram the new mantra on Dalal Street!

By ECONOMICTIMES.COM | 14 Sep, 2013, 01.12PM IST


The Reserve Bank supposedly pushed back its policy meet to September 20 in view of the US Federal congregation scheduled two days ahead of this date, on September 18.

What transpires in the US is widely expected to have a significant, if not huge, impact on emerging markets, especially the Indian stock market. What happens in America on September 18 no-one knows, as is the case with what RBI’s new chief Raghuram Rajan does at the policy meet two days later. The Indian stock markets are palpably cautious ahead of these two pressing meetings, which is apparent given the way the markets have been behaving over the past two sessions.

As far as the US is concerned, that it will announce something on QE tapering is almost a given, but then the amount of withdrawal of easy money is anybody’s guess. “One school of thought believes that the Fed would try its level best to reassure the markets that the accommodative stance would stay till it is required for its economy … For emerging markets like ours, if it’s early unwinding then it would mean a fall in our currency and continuity of high interest rates leading to further slip in economic expansion,” says DK Aggarwal, CMD, SMC Investments and Advisors.

“On the other hand, if the US Fed takes baby steps it would provide some more time to emerging markets to take steps to build confidence and try and correct the home-grown problems,” Aggarwal adds.

How will, or could, Raghuram Rajan react? Experts too are pondering. “As far as the rate action is concerned, much of it is dependent on the outcome of FOMC (Federal Open Market Committee) . I will be watching the RBI policy more in terms of the stance it takes. It will give us a very good idea regarding the contours which the monetary policy is going to take as we go along. Part of it has been explained. The forex stability is at the top of the agenda of the new governor followed by inflation management. These are positive for the bond markets per se, but I hope to be able to read more into the mind of the new governor so that we get a better idea as to how he is going to calibrate the monetary policy. From the non-rate action point of view, I will be watching the policy a little more closely than usual,” says Killol Pandya, Senior Fund Manager-Debt, LIC Nomura Mutual Fund.

Most probably the US is likely to go for a tapering to the tune of $10 billion. What if the US tapering is in line with expectation; will it mean a bull run of sorts for the market? “Fed will get into tapering by sensitising the markets. They have already made some statements in that regard. I think it will be a ‘taper light’ situation … you might see that as a little bit of rejoicing, which already has been in the emerging markets, that might continue for some more time,” says Vikas Khemani of Edelweiss Securities.

Even if it’s a little bit of joy for the market, will it last? “Tapering is more or less priced in. If the tapering is light, emerging markets will rejoice in the short term. Currencies will recover, but that would be a short-term phenomenon,” says Vikas Khemani adds.

And if it’s $10 billion, how would Raghuram Rajan react? “It is to be seen what Mr Rajan comes out with … he needs to basically determine what the FOMC minutes are saying, what the Fed chairman is saying to determine the course of his action in terms of either withdrawal of the plans that the earlier governor had imposed on banks which got a huge amount of liquidity crunch for the system and increase the borrowing cost for most of the bankers on the wholesale side,” says Mayuresh Joshi, VP-Institution, Angel Broking.

What if the US Fed delays the tapering to a later date? Will there be a euphoria-like situation on Dalal Street, at least for some time? “After the recent run-up that we have seen on the market, obviously the key points remain on the events in the coming week. What the FOMC will come with possibly on Wednesday in its meetings is a key event that not the just emerging markets but all markets across the globe are tracking … The markets have already factored a $10 billion kind of a drawdown happening from September, but if for some inevitable reason based on data and analytics if the Fed chairman decides to delay the said event to a later date, the markets may take that little bit more positively,” adds Mayuresh Joshi

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