The US Fed meet on Sept 16-17 is perhaps the most important event for global stock markets, including India in 2015. This is for the first time in 9 years the US Federal Reserve would look at the possibility of hiking key interest rates in the US as recovery, particularly jobs recovery gathers pace.
A hike in interest rates could see markets across the globe falling sharply and India following. This is because money would move from stock markets to safe haven assets like US Govt securities as interest rates rise in the US.
Indian markets along with global markets saw immense volatility this week. While market observers are suggesting that the US Fed would not move until Dec 2015, some believe that an interest rate hike is coming on Sept 17.
If an interest rate hike does not come through it would be a reprieve for the Indian markets, which have been reeling for the last couple of months. The Sensex has lost almost 4400 points since hitting a peak of 30,021 points in March.
Indian markets could be badly hit if the meeting on Sept 17 suggests an interest rate hike. This is because significant amount of foreign flows through Foreign Portfolio Investors (FPIs) have come in since the Narendra Modi government took charge. If this flows leave the country, expect some sharp fall in the indices, no matter how much domestic institutions support the market.
Clearly, it's a make or break for markets next week. It would also be a truncated week with markets being closed on Sept 17 for a festival.
It's best to stay away from the markets until the final outcome is known.