Now that the ‘Baahubali’ of US, the Fed has raised key interest rates after nearly a decade, it’s time to revisit our Pre-Fed meeting article titled ‘Yeh Kahaani Fed ki’ to find answer to the big question. How and to what depth markets are going to be affected by this decision? In the above mentioned article, our predictions regarding the U.S. Fed outcome turned out to be true. Let us drill the segment wise impact as the Fed begins a new era with a commitment to continue rising interest rates in near future:
STOCK MARKETS: Being a Fed chief, Janet Yellen played her part very well and showed enough maturity to deal with the after effects of rate hike way in advance. Unlike the rush seen in last rate hike almost nine years back, the Fed prepared financial markets very well this time. Thus, it goes to the lady’s credit for not creating havoc and instead making the whole event act like a shock absorber. For stock markets, the rate hike will play a crucial role and we may see a matured, gradual and swift rise instead of a ‘quick reaction fall’ as the psychological bearish impact had already played its part. Emerging markets like India will also see a mid to long term growth once local fundamentals starts responding to the work being done by government. Indian industries dependent on exports will get a boost, sectors like IT, automobile and pharma where India holds a good position in terms of exports are likely to benefit. However, Government of India’s unique initiative, ‘Make in India’ may see a slight setback due to the rate hike, but in longer run it will ultimately benefit the country’s economy. Technically, Nifty is on a good track from a long term perspective. It may get another phase of a pull-back but will not break below 6600 whereas another round of a long term rally will trigger once Nifty gets a breakout above 8700. Long term targets for Nifty are in the range of 9800-10000, way above the all-time high of 9119.
BULLION: As mentioned in our pre-Fed meeting article, gold is in a primary bearish trend and interest rate hike by US Fed has sealed the continuation of negative price movement for next couple of years. It will not be surprising to see gold trading in the range of $950 to $900 in 2016. In Indian market, we may see prices sliding towards Rs.23000-22000 range. Silver is also likely to shed another 10-15% of current price and find a support at $11. In Indian market, prices may see a downside range of Rs.30000-27000. However, silver is likely to get the benefit of being a semi-industrial commodity. So if industrial growth outside U.S. starts picking up in second half of 2016, then silver will get an edge over gold in terms of investment.
CRUDE OIL: We saw selling pressure building up yet again on crude futures yesterday after Fed announcement. As per our analysis, crude oil may break below its crucial support of $32 and may extend the fall in the range of $28-$25 in early 2016 or in the first half of New Year. Prices are likely to reverse once industrial & manufacturing growth resurrects. It is clear that a big chunk of bearish phase is still remaining and buying will come only after prudent growth outside U.S. or if OPEC decides to end the tussle with US by going for a production cut. If these happen, say in a couple of years, then the new scenario of high interest rates will support crude oil in longer run.
BASE METALS: Base metals like copper and nickel will face the worst situation in this new scenario of high interest rates in U.S. in next few years. Copper and nickel have already started to tumble more and more. Fundamentals in the largest buyer China doesn’t seem to improve in near time which will keep provoking bearish trend in base metals in small pockets. Aluminium, zinc and lead will also see some selling pressure but will find takers as they are better on fundamental level. In long term, say two years, if things improve in China and US continues to show strong growth, the rate hike will actually benefit the segment.