US Federal Reserve's taper move may keep financial markets on edge - Economic Times

MUMBAI: The US Federal Reserve's decision to begin tapering of its stimulus programme from January is likely to keep the Indian stock markets volatile during the first few months of 2014, markets experts said.

A squeeze in bond purchases may impact global fund allocation into emerging markets including India, they said, adding that other factors such as the upcoming general elections, macroeconomic data and corporate earnings, too, will decide the direction of the market next year.

"We expect global markets including India will be influenced by Fed's move on tapering," said Nirmal Jain, chairman at financial services company IIFL. "A steep tapering by Fed will impact emerging economies adversely. On the other hand, a gradual tapering will give emerging markets time to adjust."

Jain said the volatility in Indian markets will also depend on general elections, macroeconomic data and corporate earnings.

A spate of data released this month threw up disappointing numbers for the market. While wholesale inflation (WPI) climbed to a 14-month high of 7.52% in November, retail inflation (as measured by the Consumer Price Index, or CPI) rose to a nine-month high of 11.24%. Besides, the Index of Industrial Production ( IIP) for October contracted for the first time in four months to 1.8%.

"If Indian economy recovers at faster rate, and elections results come as per market expectations, then any further tapering shock by Fed can be easily absorbed by the markets," said Motilal Oswal, chairman and managing director at Motilal Oswal Financial Services.

FIIs have invested $19 billion so far in 2013, lower than last year's inflows of $24 billion. "The fresh allocation of money into emerging markets including India will depend on the extent of tapering by Fed in 2014, which will also determine the volatility in emerging markets," Oswal added.

Markets will remain volatile till general elections conclude, experts say, adding that the period in between could offer good investment opportunities. "Volatility will be associated with the markets till we are through with the general elections," said Rakesh Arora, managing director and head of research at Macquarie Capital Securities. "We expect a 5-6% possible fall in markets from current levels. We would buy on market dips."

Robert Parker, senior advisor at Credit Suisse, said, "If we see a market correction, then we would be a buyer. As we go into January and February, there is a chance of a mini correction in global equity markets, which might be around 5-7%."

Analysts say in the coming months, the Federal Reserve may cut its stimulus programme further, which will keep the markets on the edge. The US central bank was until now buying bonds worth $85 billion a month to spur economic growth. "We expect Fed to taper by $10 billion at each meeting through September 2014, followed by a $15-billion reduction to end the stimulus programme at the October meeting," said Michael Gapen, analyst at Barclays. "Chairman Bernanke's remarks suggest that the 'default action' at upcoming meetings is $10-billion taper, if the US economic data proceed as per Fed's forecast."

Copyright © 2013 Times Internet Limited. All rights reserved.

via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHT-3OYQSlypAXTEXmbp8cGEr7Fdw&url=http://economictimes.indiatimes.com/markets/analysis/us-federal-reserves-taper-move-may-keep-financial-markets-on-edge/articleshow/27667979.cms

Put the internet to work for you.

via Personal Recipe 2910127