Since US rate hikes are negative for India, why did the Indian markets rally more than 1,000 points on 17th March, despite US Fed raising rates by 25 bps?

Sensex surged more than 1,000 points on Thursday despite the Fed raising rates by 25 bps and guiding for a total of 6 more rate hikes in the year 2022. Ironically, this was the first time that the Fed had hiked rates in more than 3 years. In a way, it looks like the Indian markets reacted to the positive reaction of the Dow and the NASDAQ on the previous day. Markets were enthused by Powell’s statement that "the US economy was very strong".

Apart from the bout of short covering continuing on Thursday, the markets also benefited from FPIs turning net buyers after a very long time. The Fed was actually planning to hike rates by 50 bps in March but decided against it due to the geopolitical risk created by the Russia Ukraine war situation. Markets are also confident that the rate hike cycle would be handled much better this time around compared to 2016 and 2018.