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Fed rate hike not a worry; but no hike will be: Udayan

CNBC-TV18 Consulting Editor Udayan Mukherjee on his thoughts over the likely Federal Reserve interest rate hike and why you should approach private banks only with “trepidation”.

If the Federal Reserve goes ahead and hikes interest rates for the first time in nine years tomorrow, the market will take it in its stride. What the market won’t take, says CNBC-TV18 Consulting Editor Udayan Mukherjee, is if the US central bank doesn’t.

The Fed has strongly indicated over the past several months that it is on course to tighten monetary policy and markets have factored in a rate hike at its two-day rate-setting meeting that starts today. This has been on the back of improving macro data in the world’s largest economy.

There have, however, been some concerns that the Fed could pause — given the recent turmoil in the commodity markets — and amid worries about weak global growth and the impact a Fed rate hike could have on capital flows, especially in emerging markets.

But “given recent statements by [Fed chair] Janet Yellen [indicating an impending hike], the central bank has painted itself into a corner,” Mukherjee told CNBC-TV18’s Latha Venkatesh and Sonia Shenoy in an interview. “If it doesn’t hike now, there could be a problem.”

He also outlined his views on a number of sectors, including banks and capital goods, and said investors should be cautious about investing in private sector banks, which suffer from high valuations and a worse-than-previously-thought asset quality picture.

Interview transcript to follow.

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