Federal Reserve Rate Outlook Shifts: Hike May Replace Rate Cuts

US Federal Reserve: Extended Pause Ahead

The US Federal Reserve is expected to maintain an extended pause in monetary policy, caught between stubborn inflation and slowing growth. According to TRUST Mutual Fund CEO Sandeep Bagla, the next move is more likely to be a rate hike than a cut.

Market Expectations

The West Asia conflict has led to a prolonged US-Iran standoff, weighing on global markets. Bagla expects FY27 to be a muted year for equities, with higher oil and metal prices squeezing margins, denting earnings, and curbing demand.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Contra Play

Bagla identifies metals and commodities as a potential contra play for FY27, citing a possible race to accumulate real assets and a potential loss of faith in the Dollar.

Banking Sector

The banking sector is reasonably valued, with low credit costs and a rising credit ratio. However, TRUST Mutual Fund is unlikely to be overweight in the sector if the economy shows signs of slowing down.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

RBI Policy

The Reserve Bank of India (RBI) is expected to send a cautious signal through its policy in April, acknowledging the stagflationary conditions and forewarning market participants.

Earnings Growth

TRUST Mutual Fund expects FY27 earnings growth estimates to be revised downwards due to the recent oil price spike triggered by Middle East tensions.

Investment Opportunities

The power sector, particularly the renewable space, is expected to perform well over the next two to three years. Infrastructure providers, such as transmission companies and power cables, are also expected to see incremental demand.

Key Figures

• 15%: expected returns for equities in FY27 (unlikely)
• FY27: muted year for equities
• 2027: metals and commodities as a potential contra play
• 2-3 years: positive outlook for the power sector
• April: RBI policy expected to send a cautious signal