MUMBAI: Domestic capital markets are likely to remain volatile in the September-November period due to factors like US Fed’s policy action, second quarter corporate earnings and Bihar state elections, Bank of America Merrill Lynch (BofA-ML) said in a report. “We continue to see volatility till markets price in three expected event risks: Fed action, earnings turnaround and Bihar polls,” BofA-ML said in the report. As per the report, the American brokerage firm continues to expect the US Federal Bank to hike interest rates on September 17 on account of improving US data, even as market turmoil would “continue to pose a risk”. The US Fed will decide if it should raise interest rates from near-zero levels first time in a decade. It also noted that Indian markets would watch September results “for signs of a turnaround in earnings in October”. “Our equity strategists expect FY16 earnings to grow 12 per cent from 1 per cent in June,” it added. The report said that Bihar poll results, which are expected to be out by November, would impact the market’s perception of reforms. “It is another matter that we think lending rate cuts are far more critical for cyclical recovery at this point than reforms,” BofA-ML observed. It said that as RBI may cut rates by 25 basis points on September 29 and 50 basis points by early 2016, debt foreign portfolio investors are likely to subscribe the USD 5-6 billion FPI government securities limit hike in full. Further, it estimated that the RBI can sell about USD 20 billion to defend the rupee level at Rs 65 against the dollar “allowing for some seasonal weakness now”.