US Fed Indicates Towards Phasing Out QE- Expect Negative Opening for Indian Equities

Each and every market participant was eager to listen to what the US Federal Reserve Chairman announces at the FMOC meet. And the verdict is out with Ben S. Bernanke putting investors on notice that the Fed is prepared to begin phasing out one of the most aggressive easing programs later this year. The announcement is clear that the US Fed will probably taper its $85 billion in monthly bond buying later in 2013 and halt purchases around mid-2014 as long as the world’s largest economy performs in line with their projections.

As expected the US equity indices witnessed a decline with Dow Jones declining to 15112 (Down 1.36 %) and NASDAQ closing at 3443.20 (Down 1.13 per cent). Ahead of event, even the European markets closed on a negative note with FTSE 100, CAC 40 and DAX witnessing a decline of half a percentage each. 

There were expectations about asset purchases to continue unabated through at least the end of this year given the recent employment and inflation data which was not on the expected line of US Fed. With the US Fed providing the earlier indication of tapering the QE, liquidity in the emerging markets especially the riskier asset class is expected to dry up. No wonder with the flows from US markets drying; the leading Asian indices are trading in red. While Nikkei is trading at 13095 (down 1.19%) Hang Seng is down 2.18%. Similar is the fate with Shanghai Composite (down 0.90 %) and Strait Times (Down 1.47%). 

While the impact of the above news is expected to be negative in short term, we feel the Fed statement is also indicating towards largest economy in the world slowly but steadily recovering. As for the Indian Equity markets, the last few trading sessions have been quite volatility. The various factors like below than expected March quarter results, inaction from the Government and even some amount of political instability with the largest opposition NDA witnessing internal rift.  The only factor which was helping the Indian equity markets was the strong FIIs inflow. With the US Fed indicating towards the tapering of Bond buying towards the end of the year, Indian Equities may face some Set back. Again it would be a temporary setback.

As regards the intraday movement for Indian Indices, we expect the Indian markets to open on negative note which would be in-line with the Asian peers. Even the SGX Nifty is indicating towards the same and is trading at 5753 (Down 1.06%).