By Manish Jain
The Fed has been super aggressive in tightening in the last few months with a single-minded focus on bringing inflation under control even if it meant slowing the economy down a little. Never before in recent history has the tightening cycle been so aggressive, with four 75bps consecutive rate hikes in a matter of fewer than 6 months.The issue for emerging markets like India was that the RBI was forced, in order to defend the currency, to match every Fed hike point to point. After a substantial depletion of the forex reserve, hiking rates were pretty much the only weapon in the arsenal. The biggest impact of this tightening cycle was the flows, especially FII/FPI have not only seen a substantial outflow but also have remained volatile. The biggest fear, and quite justifiably, was that the economy and consequently the equity markets would reach a tipping point.
(Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management. Views are author’s own.)