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Irrespective of the short term knee jerk reaction, there is no direct correlation between interest rates hikes and adverse stock market reactions.
For example: During Dow’s bull journey in 1994 to 1995 the interest rates were increased from 3.75 to 5.75 over a period of 15 months – 18 months wherein still the Dow rose from 3500 to 5000 by December 1995. There are many instances wherein no such meaningful correlation is found.
However when interest rate hikes reaches an extreme in the range of 5-6 percent, that’s the time US markets have cranked substantially. Thus there is more room for interest rate hikes from the current 1 percent which may not impact the markets in the short term. But if the US market succumbs to deep sell off, Indian market too will be adversely impacted.
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