Indices take US Federal Reserve rate hike in stride to rise for second day

The country’s benchmark indices logged a near 2 per cent rise for the second day in a row even as the US Federal Reserve kicked off its interest rate increase cycle on Wednesday.

The benchmark Sensex posted back-to-back 1,000-point-plus gains even as the Fed raised rates by 25 basis points and indicated an aggressive path ahead with six more hikes this year. The Sensex ended the session at 57,864, with a gain of 1,047 points or 1.8 per cent. 

The Nifty, on the other hand, closed at 17,287 points, a gain of 311 points or 1.8 per cent. The Sensex ended the truncated week with a 4.2 per cent gain, the best weekly advance since February 5, 2021. Both the Sensex and the Nifty — up nearly 10 per cent in eight trading sessions — ended at their highest levels in a month.

Barring two stocks, all constituents of the Sensex gained. Reliance Industries rose 3.2 per cent and was the biggest contributor. The realty index gained the most (3.1 per cent). Investor sentiment was also boosted by Fed Chairman Jerome Powell’s assurance that the “US economy is strong and well positioned to handle tighter monetary policy.”

The Fed also said it would begin shrinking its balance sheet. The rate hike dashed fears that the Fed’s monetary tightening would spell doom for the equity markets. Experts believe the markets took the Fed’s decision in their stride as it had prepared the investors for the rate hike.

"The Fed statement was not very hawkish though they said they will take steps to contain inflation. That was a sigh of relief. The event is behind us, and we know what to expect vis-a-vis interest rates,” said UR Bhat, co-founder, Alphaniti Fintech.

Experts also said the sharp bounce in China’s market is favourable for global equities.

According to experts, central banks across the globe are treading a fine line between taming inflation and facilitating growth. And the risk of central bank error killing growth or letting inflation out of hand is getting higher.

“The Fed’s 25-basis-point rate hike puts pressure on other central banks to follow suit, including the RBI. But the rate differential between India and the US is still wide enough that it should not cause significant fund outflows,” said Mark Matthews, head of Research Asia, Julius Baer.