Fed cut may help Sensex, Nifty hit the bull's eye

The elusive close above the crucial 20,000-mark for the Sensex appears stronger than ever this week on an expected quarter-point rate cut by the US Federal Reserve on Tuesday, which is likely to trigger a rally in banking, IT and real-estate stocks on Indian markets.

Revision in 100-odd futures and options (F&Os) stocks from December 28 series, announced by the NSE after Friday close, will also boost sentiment in these counters this week, well ahead of the new series, said analysts.

The Sensex crossed the 20,000-mark at lease on two days last week, but it could not close above this psychologically important milestone as profit booking set in, said analysts. The Sensex first crossed the 20,000-mark on October 29, but is has never ended above this mark since.

Similarly, the NSE's Nifty is also yet to end above the 6,000-mark, though it was able to close at a new record on the last two consecutive trading sessions. Its close of 5,974.30 on Friday is a new record.

"Signals are strong. We see the market rallying to 21,500 levels from here on. Banking and real estate stocks will gain from a cut in US rates," said Alex Mathews of Geojit Financial Services. "Chances of a sell-off are very slim, whereas chances of a big buy by domestic funds are very high."

On Thursday, President George W Bush announced a plan to stem US home foreclosures, sending stocks in the US, Europe and Asian markets surging on optimism that it would keep the economy from sliding into a recession.

The stock market has been expecting a cut in rates by the Fed and a 25 bps may have already priced in, said analysts. "We may go into the New Year with 20k-plus levels, if there is a 50 bps cut," said Mathews.

It was feared that a sliding US economy may hit Indian software makers. Bush's plans to stem the slide boosted sentiment on stocks such as Infosys, TCS, Wipro and Satyam.

Foreign funds have pumped in a record $16.72 billion into the Indian markets this calendar. However, profit booking and curbs on participatory notes have resulted in their becoming net sellers.