US fed rate hike to impact China more than India

US fed rate hike, which is expected to strengthen the USD and also firm up the bond yields in US markets may pose some serious problems for China more than it can pose problems for India.

It is expected that there will be capital outflow from these two favourite emerging markets of the FPIs.

Indian markets have been witnessing good amount of support coming in from the DIIs, thus arresting the markets' fall. Even as the FPIs have turned out net sellers to the tune of US$ 1.4 billion in the month of November; the DIIs almost matched the figures but on the reverse side of the transaction thereby being the buyers.

Chinese economy, however, is marred with bubbles in different sectors or asset classes. The real estate prices in China have gone up by 30 to 50 per cent in the past 18 months and the debt has increased by 60 percentage points to the GDP. With rising US$ the debt servicing will be an issue for the Chinese economy and will affect negatively the economy due to its leveraged characteristic.

Few Indian companies may be impacted negatively, only marginally owing to rise in US interest rates. Beyond that the impact for Indian economy is restricted to the capital outflow damage that it can cause to the financial markets and to the EXIM balance due to strengthening USD.