Context: In a reprieve for the debt and equity markets, the Federal Reserve announced that the interest rates are being kept near zero. While it maintained that it will continue the flow of credit to households and businesses and support the economy, it indicated that there may not be any interest rate hike through 2023.

Effect on Indian Market:

• While that boosted investor sentiment and led to a rise in major indices around the world, the Indian market fell by over 1%, despite opening on a strong note.
• The Sensex fell 585 points or 1.2% to close at 49,216, taking the fall over the last five trading sessions to 2,063 points or 4%.
• The weakness continued even as the Fed announcement comes as a positive for equity and debt markets.
• Market participants feel that while the market may be witnessing some correction on account of concerns over rise in bond yields and domestic factors including rise in Covid-19 numbers, the trajectory for the market remains upwards and investors should stay put and invest on dips.

What does it mean for Indian markets?

• The announcement would calm the markets that have been wary of a rate hike earlier than expected.
• If a sudden rise in bond yields raised concern on the continuation of FPI fund flow, the Fed’s announcement that it will continue to provide liquidity for a reasonable period will ensure the equity markets will remain strong.
• There may be ups and downs depending upon domestic news flow around Covid-19 and other factors, but overall the trajectory of the markets is upwards and it will be supported by a rise in earnings, growth in economy and fund flow by FPIs.

https://indianexpress.com/article/explained/bse-sensex-us-federal-reserve-interest-rates-7234841/

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