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Below is Statement on FOMC rate hike Statement September 2022  By Dr Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital

There was no surprise in the interest rate hike of 75 bps by the Fed. In fact, for many it might have been a relief that it was not 100 bps. The important data was in the projection materials.

The US real GDP for 2022 is expected at 0.2%. With H1 2022 data being -2.2%, this effectively is a forecast of +2.4% for H2 2022. On a nominal basis, the US GDP for 2022 is expected at +5.6% based on the dot plot.

As per NBER, while Q1 corporate profits decreased 2.2% in Q1 2022, they increased by 6.1% in Q2 2022. The GDI (Gross Domestic Income) data for Q1 and Q2 was +1.8% and +1.4% respectively.

It is reasonable to infer from the above that US corporate earnings and revenues are going to be growing for the full 2022 as well as for H2 2022.

Going further into 2023, the dot plot shows a real GDP of +1.2% and nominal GDP of +4%.

It looks like the Fed is likely to achieve its goal of slowing down the growth without going into a recession to tame inflation.

RBI action

Coming to impact on India, the RBI is likely to raise rates by around 50 bps to minimize impact on the INR and mitigate inflation import. Given that the Fed is likely to continue raising rates in the November and December meetings by 75 bps and 50 bps, there could be some impact on Indian growth if RBI is forced to match the interest rate increases. RBI might counter with increasing the rates but increasing liquidity at the same time, thus supporting growth.

Indian GDP and corporate profits should continue being in strong positive territory despite expected rate increases. This is likely to continue being attractive to FIIs.

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