By:- Thomas Priju, Portfolio Manager, Karma Capital
The market is likely to remain cautious ahead of the US Federal Reserve’s policy decision, with investors closely tracking the inflation outlook and signals on the future trajectory of interest rates. The expectation is that the Fed will keep rates unchanged in October, but the key focus will be on its commentary and the possibility of further tightening in December. Persistent inflation and elevated energy prices could limit the scope for monetary easing.
For Indian equities, the direction of US bond yields and the dollar will be important transmission channels. A hawkish stance could keep global financial conditions tight, weigh on emerging-market flows and create near-term volatility in the Nifty. Conversely, a more balanced assessment of inflation and growth could support risk appetite. With the US midterm elections approaching, markets will also be sensitive to policy uncertainty and geopolitical developments. Investors should therefore focus less on the immediate rate decision and more on what it signals for the global cost of capital and liquidity over the coming months
