Markets may remain volatile ahead of Fed meeting

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Markets may remain volatile ahead of Fed meeting
It was a tumultuous week in which the forex and stock markets swung in every possible direction. Friday was a relatively calmer session for the markets, with the currency gaining and global markets quieter. The Sensex ended the week 1 per cent lower then the previous week, after touching an almost 1-year low.

Markets will continue to swing wildly ahead of the crucial Federal Open Market Committee (FOMC) meet scheduled for September 17 and September 18.

Why is the Fed meeting so crucial?

After these two days it is likely that the Fed would announce a decision on its asset purchase programme (QE3).

Tapering of its asset purchase programme or QE3 in the US as it is popularly known tantamounts to less liquidity in the global financial system, which tends to impact global markets, particularly emerging market stocks and currencies.

By tapering-off QE3 the Fed would pump less money into the US economy, against the current $85 billion it is pumping. A lot of this money finds its way into global markets.

All of the emerging market currencies and stock markets have fallen on fears that the QE tapering in the US was near.

Indian markets get affected in the sense that QE tapering would mean that foreign funds would start selling stocks dragging them lower. Obviously, this also has a cascading effect on the currency, which tends to get battered.

It may be volatile times ahead of the Fed tapering decision. If one can digest volatility it may be a good time to buy beaten down names in the banking and infra sector.

Read more about: qe3, sensex, nifty
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