Impact by US Federal Reserve

The cover story in the recent issue on finding the market bottom gave me some good insights as to the current scenario of the Indian equity markets. Can you please explain how actions of the US Federal Reserve impact Indian capital markets? - Rohan

Editor Responds: We appreciate your kind words of encouragement. To answer your query, if the US Federal Reserve decides to increase the interest rate, the cost of capital increases which leads to foreign investors pulling out money from the Indian markets and investing it in their own country, which causes depletion of India’s foreign reserve. Thus, it affects both the Indian markets and economy negatively. Similarly, if the US Federal Reserve decides to decrease the interest rate, the cost of capital decreases which lures the foreign investors to invest their money in Indian markets. The increase in foreign reserve impacts Indian markets and economy positively. Hope this helps. Keep writing to us.