What next if Fed hikes rates tomorrow?

With foreign institutional investors (FIIs) exiting domestic markets over anticipation of the 'Big Day', Tuesday's pull back on Dalal Street was more of a short-covering and this trend might be seen repeating on Wednesday depending on the Federal Reserve announcement over rate hike, says Nipun Mehta, Founder and CEO of Blue Ocean Capital Advisors.

Speaking to CNBC-TV18, Mehta says the Fed rate hike may be between 15 and 25 basis points. However, the outlook is going to be critical keeping in mind global as well as emerging economies as it is not just going to impact foreign exchanges, but global inflation too, he says.

In the Indian equity market, overall valuations are becoming attractive in beaten down sectors, particularly public sector banks, Mehta says. In terms of fund flows, he says funds outflow has already happened in anticipation of a rate hike and there could be further outflows depending on the Fed outlook.