After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector and telecom sector witnessing maximum buying interest.

The BSE Sensex is trading up 310 points (up 0.9%) and the NSE Nifty is trading up 98 points (up 1%). Both - the BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 1.2%. The rupee is trading at 65.21 to the US$.

Market participants are keeping a close watch on the ongoing Federal Reserve policy meeting to track the decision on an interest rate hike.

This is the first policy under new Fed chief Jerome Powell. The Federal Reserve is expected to hike US interest rates and perhaps signal that as many as two more lie in store for the rest of the year.

In its last meeting, the Fed said it expects "further gradual" rate increases. The target range for the federal funds rate currently is 1.25% to 1.50%.

Note that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the news from the steel sector, Trade Minister Suresh Prabhu said India will bilaterally discuss import curbs on steel with the United States.In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

The announcement comes amidst growing concerns of an escalating trade war over tariffs. Prabhu told that the US was committed to the World Trade Organisation, even as Washington has raised concerns about the functioning of the WTO and asked for reforms.

Note that US President Donald Trump followed through on his pledge to impose stiff tariffs on imported steel and aluminium, while excluding Canada and Mexico and leaving the door open to sparing other countries on the basis of national security.

He also warned there would be more tariffs coming, saying he plans to proceed with what he has called "reciprocal taxes" on imports from countries that charge higher duties on US goods than the US now charges on their products.

As for domestic markets, the above actions by Trump has sent Indian metal stocks in the red.

India's steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll, as can be seen from the chart below:

Is the Steel Sector's Recovery Under Threat?

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it's not that simple.

The above development would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry.

How exactly this trade war will unfold is something to watch out for. We'll keep you updated on all the developments from this space.