US Fed & Dalal Street: How the rate hike will impact your stocks

“We are of the opinion that the interest rate cycle has reached its peak, and the likelihood of a further rate hike is low. This could provide a direct boost to debt-heavy sectors such as infrastructure, construction, and capital goods,” said Vinit Bolinjkar, Head of Research at Ventura Securities.

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KEC International – (CMP: Rs 514, M Cap: Rs 13,214 cr, FY25 P/E: 17.6 times)

IRB Infrastructure – (CMP: Rs 29, M Cap: Rs 17,229 cr, FY25 P/E: 15.5 times)

NTPC – (CMP: Rs 176, M Cap: Rs 1,70,855 cr, FY25 P/E: 7.9 times)

Adani Ports & SEZ – (CMP: Rs 680, M Cap: Rs 1,46,803 cr, FY25 P/E: 14.9 times)

Capacite Infrastructure – (CMP: INR 132, M Cap: Rs 898 cr, FY25 P/E: 4.9 times)

Ahluwalia Contracts – (CMP: Rs 565, M Cap: Rs 3,785 cr, FY25 P/E: 12.2 times)

Investors in these stocks may benefit from the current market conditions, as Bolinjkar believes the interest rate cycle is set to plateau.

“The Indian market is normally impacted when the interest rates are hiked in the US. Rate hike positively impacts US treasuries’ yield, which motivates foreign investors to pull their money out of the Indian markets and invest it in their own country. Also, an increase in interest rates would result in a weaker rupee in comparison to the dollar. This would again bring foreign investors lower returns on their investments,” said Rajesh Sinha, Senior Research Analyst at Bonanza Portfolio.

However, Sinha said that the US Fed rate hike or cut don’t take place overnight. The news regarding step the to be taken by the Federal Reserve starts roaming around the markets before it gets a nod from the Federal Reserve. This will help the market in preparing for any wild move post the announcement.

“Post rate hike announcement, the US stock market reacted negatively to it, but there is a sharp fall in crude oil prices, US bond yields, and the dollar index, which are positive for emerging markets like India,” the analyst added.

The US Fed has signaled it may pause further increases, giving officials time to assess the fallout from the bank failures, wait on a political resolution to the US debt ceiling, and monitor inflation.

Although investors initially cheered the possibility of a pause, their confidence waned as Federal Reserve Chair Jerome Powell spoke, clarifying that inflation remains the chief concern and that it is too soon to say with certainty that the rate-hike cycle is over.

“The Fed hike seems like this is the last rate hike, but rate cuts could happen later only if there is significant deterioration in economic activity or inflation cools off. This led to sell-off in US markets but may not have a material impact on India in the short run as RBI has paused rate hikes and there is weakness in the crude oil price,” said Hemang Jani, Head of Equity Strategy at Motilal Oswal.

“While we see a static Fed in coming months, we continue to see a case for tricky sacrifice ratios and financial cracks, implying mispricing by equities,” said Emkay Global.

The Fed hike can further add to the stress in some banks in the US. However, this may not influence the RBI decision in the coming meeting, said Divam Sharma, Founder at Green Portfolio PMS..

“The Fed commentary seems reassuring and is hinting at the pause. Higher probability of an economic recession in the developed countries can impact businesses exporting to these countries. We do not see this as a long-term impact on our portfolio companies,” said Sharma.

Tina Teng, market analyst at CMC Markets, told Reuters that the Fed decision was widely expected, so it didn’t provide much of a shock to financial markets. ”However, I think the whole economic playout is not positive, especially the recent banking rout from the regional banks, and those big banks taking over the smaller banks. It’s not a good sign, and risks are spreading out into the wider banking system, which worries investors,” Teng added.

Meanwhile, another US regional bank, PacWest Bancorp, reported troubles overnight, reminding investors of the precarious health of some banks despite regulators’ assurances around containing the crisis that started with the collapse of Silicon Valley Bank and Signature Bank in March.

The European Central Bank (ECB) is also scheduled to meet later in the day and is expected to raise rates. It will be a seventh rate rise for the ECB, the central bank for a 20-country zone whose headline inflation is 7 percent and that has so far dismissed the ongoing banking crisis as US-specific.