Phew !

Hello there, how are you? Been awake to know Fed’s decision or been asleep to leave it until morning? Well, the news is that QE is very much alive and yes and there is no tapering, not a single penny. Beating all consensuses and proving most equity strategists, fund managers and economists wrong, Fed has decided to leave the quantitative easing without any cut. That’s a big positive surprise for everyone, even for the markets. We don’t need any equity strategist to tell that the markets would show a gap up opening today. How much is the question.  We reckon that Sensex would open 300 -400 points up while Nifty would show a gap up opening of about 100 points.

The global markets have been under huge stress for many months as Fed had indicated that it may start cutting the QE as early as September 2013. The currencies of the nations having current account deficits, have witnessed a huge depreciation due to the capital outflow. But the things, for now but not for the last time are restored.

In 9-1 vote, Fed has chosen to keep buying USD 85 billion bonds a month. In a press conference, Fed Chairman Ben Bernanke said the Fed might still scale back its purchases before the end of the year, but it will depend on whether growth and the pace of hiring show greater strength. The risk is not over as yet but for now the global economy has averted an immediate liquidity crisis which means that countries which would have been in trouble in the first place due to the cut in QE, have borrowed some time to rearrange their financial positions.

For India, things had moved against too rapidly but the recent RBI measures have partially restored some confidence in the economy. Rupee’s downward journey has also stopped somewhat. The Fed’s act has incredibly resolved the big questions in front of the Dr Raghuram Rajan. His predecessor had to tighten the liquidity and take measures to stop the capital outflow. Now market would expect Dr. Rajan to ease liquidity in his first policy meeting tomorrow.

How should one take this whole saga that has been unfolding for last five months? Well, we believe that QE may get tapered next year but the Fed Chairman Ben Bernanke has successfully prepared the global markets for the worst and he deserves a pat for his act. The globe is not yet ready for a liquidity shock at this time considering US data is not robust, EU is not even in true recovery mode and emerging markets are slowing down. A liquidity shock at this time would have blown away the global recovery, pushing world economy back by a couple of years. 

As the things stand as the stood before, it’s time that we dust off the cloths, strengthen our muscles so that when they really do what they want to do, we don’t fall off like we did last time.