Market outlook: US Fed to dictate the trend in the market

{mosimage}This week all eyes will be on the US Fed meeting which is on September 16 and 17, 2015 to decide whether to raise the benchmark US interest rate from current near zero level. With the US economy improving,  it's just a matter of time that US Fed will bite the bullet and hike interest rates. However, with the recent devaluation of Yuan, the Chinese currency and slowdown in global economy, US Fed may not be in a position to do a continuous raising of interest rates, the hike would be staggered and would be calculative which would mean good news for markets like India which is predominately dependent on foreign inflows. Meanwhile, concerns over growth in the emerging markets and talks of a hike in interest rate in the US have already seen the flight of capital to safe haven like the US market.

In fact, for India this is a wonderful opportunity to have the most of the commodity slowdown. Crude oil prices aren't going to go anywhere above $65-70 per barrel as at those levels shale gas becomes viable and oil producing nations will not allow this to happen, particularly Saudi Arabia. Similarly, with huge supplies in commodities, be steel or iron ore, India is in a great position to take the advantage of exploiting the situation of building a strong economy. This is also because of controlled fiscal and current account deficit and inflation. Unlike its counterpart in the emerging market which is predominantly dependent on commodities or export, India is still a consumption driven economy. The government has to spend, it can't leave it to the private sector to do the spending which are already struggling to come out of the debt trap. Government will have to do smart spending in the areas of building infrastructure and boosting growth if it has to keep foreign institutional investors interest alive in the Indian market. With the fading growth, the foreign flows are also said to disappear.

Market will also keep a close watch on the Reserve Bank of India's (RBI) monetary policy on the September 29, 2015. With inflation coming down, market hopes RBI governor to cut rates. But a small cut will not be able to boost sentiments. In fact, recently RBI governor too talked about government to spend for boosting growth. Meanwhile on Monday, the government will also announce consumer price index (CPI) and wholesale price index (WPI) data for the month of August 2015. For July the CPI was at 3.78 per cent, while WPI was at a negative 4.05 per cent. A positive indication on CPI could hint at a rate cut in the coming policy.

Meanwhile,  this week the market will remain volatile in a truncated week. On Thursday, September 17, 2015 markets will remain closed on account of Ganesh Chaturthi. While on Monday market may open positive on the back of IIP data which was unveiled on Friday after market hours. IIP rose to 3.8 per cent in June 2015, compared to 2.5% in May 2015. This week will also see the payment of the advance tax payment by India Inc for the second quarter of financial year 2015-16.