Sensex Plunges 900 Points As US Fed Signals Hike In Interest rates

Indian benchmark indices plunged in trade along with Asian markets as the US Fed indicated that a hike in interest rates was coming and it would end its bond buying programme in March, 2022.

Indian markets are expected to remain weak in the coming days, given that they are vulnerable to any hike in US interest rates. Indian markets have been in a sweet spot over the last 1-year over lower interest rates, but, that is likely to change.

What happens when interest rates in the US rise?

When interest rates rise in the US, there is outflows from emerging market stocks by Foreign Portfolio Investors. These set of investors start chasing high sovereign bond yields in the US, which are safe. The stock markets were in a sweet spot in the last many years. Interest rates were low, which pushed investors to invest in stocks. With interest rates now likely to rise and the Fed also hinting at shrinking its balance sheet, emerging market stocks are likely to come in for a pounding.