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Indian share markets are trading on a firm note after taking cues from the recent FOMC meet where the Fed Reserve raised interest rates by 25 basis points. Sectoral indices are trading on a positive note with stocks in the metal sector and power sector witnessing maximum buying interest.
The BSE Sensex is trading up 146 points (up 0.5%) and the NSE Nifty is trading up 53 points (up 0.6%). The BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 65.39 to the US$.
In line with the stock market expectations, the US Fed hiked interest rates by 25 basis points in its two-day monetary policy review that ended yesterday. This was marked as the second interest rate hike in three months.
What came as a relief for financial markets was Fed's assurance that any further hikes this year will be gradual. As per the Fed, the Fed Reserve key short-term rate will go up by a quarter-point to a still-low range of 0.75% to 1%.
The FOMC was of the view that the longer-run neutral level of the federal funds rate may remain below levels that prevailed in previous decades. The Fed median forecast for the federal funds rate stands at 1.4% at the end of 2017, 2.1% at the end of 2018, and 3% at the end of 2019. This was same as the estimates made by the Fed in December.
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The Fed also noted that the US economy is progressing well toward its employment and price stability objectives. It expects job conditions to strengthen in the coming days. It believes that in case the economic activity pans out as anticipated, it would gradually increase federal funds rate ahead.
It, meanwhile, expects core inflation to move up and overall inflation to stabilise at around 2% over the next couple of years. The median projection for growth of inflation-adjusted GDP is 2.1% this year and next, and a lower 1.9 per cent in 2019, slightly above its estimated longer-run rate.
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In other news, the United States may take time longer than expected earlier to tighten laws for overseas professionals in the country, White House press secretary Sean Spicer has indicated.
The news comes as a sigh of relief for Indian companies that they may be able to benefit from the existing H-1B visa policy for their workers this year.
One must note that Indian IT companies are facing the brunt of immigration restrictions proposed by the Trump administration.
Large Indian IT companies, on an average generate more than 50% of their revenues from the US clients. They have built a strong client base over the years in the US market. If the suggested changes for immigration get cleared, the cost component for the Indian IT companies will go up. The need to reduce their US exposure and move to other geographies is a given.
However, we believe that it is unlikely that the companies will substantially bring down their focus on the US. Instead companies may look out for other means to reduce costs or protect margins.
That said, Indian IT companies will also need to rise to Trump's challenges. But fortunately, most were already gearing up for this. Trump may have only accelerated their defense.
So if you aren't worried about the revenue guidance in the coming quarters, you need to do just one thing: Keep a vigil on valuations. As you never know, the Trump crash may be an opportunity to act on not just IT but lots of other safe stocks as well.
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