Silver lining for India as America announces $10-bn QE taper

December 19, 2013

Mumbai-India (Dec 19)  Silver lining for India as America announces $10-bn QE taper Now the two big events - RBI policy review and US Fed tapering - are over with, the markets can relax, say experts.  

There's some good news for India on the announcement by the US that it would taper its $85-billion easy money monthly initiative by $10 billion.

"The Indian rupee typically gains when the Fed begins tightening. The very growth that pushes the Fed into tightening should also whet risk appetite for investing in relatively high growth EMs like India," says a Bank of America Merrill Lynch report.

What's more good for India is that the decision by the US Fed indicates that the recovery in the largest economy is a matter of fact now. "US recovery should be positive for India and the rest of the world in the medium term,"

On a cautious note, it says that the rupee could see some bit of volatility if the markets panic about the shrinking of liquidity. The Indian markets today are seeing some bearishness, with the Sensex down about 200 points as of 11:58 a.m.

"I would be positively biased towards the exporting sectors as directionally the Fed will move towards some easing on the amount of monthly purchases they make,"says Jitendra Sriram, Director & Head of Research, HSBC Securities.

Even if the rupee depreciates, it augurs well. "In that regard, I would expect,the dollar to strengthen and EM currencies to weaken. So, one would be positively biased towards exports whether it is healthcare, IT or even 
manufactured exports," he adds.
 Analysts are positive on the IT sector also because developed markets like Europe and the US are showing incredible traction, and are in a recovery phase.

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