MUMBAI: An imminent U.S. rate hike, coupled with upcoming macro data and developments on passing the goods and services tax (GST) bill passage during the winter session of parliament, will dictate the trajectory of not only Indian equities but also the rupee during the week ahead, market observers said.

"The focal point will be the outcome of the U.S. Federal Reserve meeting. The probability of a rate rise up to 25 basis points is now more than 70 percent. The U.S. Fed driven volatility and year-end inactivity will keep the markets on a leash," Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.

"Global cues remain important, including the movement of the yuan."

The chances of a U.S. interest rate hike has been heightened with positive macro economic data and after U.S. Fed Chairperson Janet Yellen said that she is looking forward to an interest rate hike, which will be seen as a testament to the country's economic recovery.

The U.S. Fed will conduct its FOMC (Federal Open Market Committee) meeting. A hike in interest rates which have been at near-zero levels since the last decade will send shock waves across the world's capital markets.

A rate hike could potentially lead to a massive pull-back of foreign funds from emerging economies like India. It is expected to dent business margins as access to capital from the U.S. will become expensive.

In addition to the U.S., Indian markets can come in for a bombardment as frantic dollar buying will devalue the rupee.

On a weekly basis, the rupee weakened by 17 paise at 66.89 (66.8850) (December 11) to a U.S. dollar from its previous close of 66.70 (December 4).

"The rupee value is expected to be under pressure till the Fed conducts its FOMC," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

Read More: India-U.S. Defence Ties to Become Anchor of Global Security: U.S.

Indo-U.S. N-Deal Could Be Implemented In 2016: American Diplomat
Source: IANS