The Federal Reserve’s latest rate hike may have been largely anticipated by markets, but the implications for India go well beyond the 25-basis-point move. For Indian equities, the bigger transmission channels could be US bond yields, the dollar, crude oil and the rupee—and the way these four variables interact could determine the next leg for markets.
With US Treasury yields elevated, the dollar strengthening, crude prices adding pressure to India’s import bill and the rupee trading near record lows, global investors face a very different risk-reward equation when allocating capital to emerging markets. At the same time, higher US yields are making fixed income increasingly competitive with equities for global capital.
