US Fed, BoJ fire up markets. How long will the rally last?

Analysts expect the markets could remain upbeat for some more time in the absence of any negative global cues

Markets gained ground after the Bank of Japan (BoJ) and the US Federal Reserve (US Fed) kept key interest rates unchanged in their respective policy reviews over the past two days. The S&P BSE Sensex rallied over 300 points, or 1%, on Thursday to 28,800 levels and the Nifty 50 index moved up 1.1% to 8870 levels in intra-day deals.

Going ahead, analysts feel that the markets could remain upbeat for some more time in the absence of any negative cues from abroad. However, they remain watchful if the developing geopolitical situation between India and Pakistan, and also of the second quarter results of corporate India. The US Fed, they say, is preparing the markets for a December hike.

"Investors would cheer decisions of both these central banks, especially the US Fed, as the rate hike has been pushed back for some more time. However, the hike is inevitable from US Fed's viewpoint, though I am unsure what the BoJ will do going ahead. I expect the markets to remain buoyant given that the rate hike in September was an immediate negative factor that the markets were grappling with," says Jigar Shah, chief executive officer, Maybank Kim Eng Securities.

"Our December 2016 Nifty50 target is 9,315. The markets can see these levels if the positive sentiment sustains. By October end / November beginning, we should also hear something on the GST (goods and services tax) rates. Despite mixed economic indicators, the corporate results have been in line with expectations, which is a positive. As a result, the liquidity will remain strong for next two months at least. However, one needs to watch the India-Pakistan geopolitical situation closely," he adds.

Foreign institutional investors has put in nearly Rs 62,000 crore in the Indian equity market segment since March 2016 till September 22 when the overall market sentiment started to improve, NSDL data show.

Tirthankar Patnaik, India Strategist at Japan-based Mizuho Bank, on the other hand, expects this relief rally to last for 10 - 15 days at least.

"The positive sentiment will last till the time more moving parts, such as the next quarter results of India Inc, are added to the overall market sentiment. We do not see any major global negatives coming in that would upset the positive momentum. The US Fed has made sure that the markets are fully expectant and ready for a rate hike in December," Patnaik says.

Despite the rate hike possibility by the US Fed in December and the volatility in the run-up to the event, analysts believe that India will be able to weather the storm due to its strong macro-economic fundamentals.

"Government's commitment to medium-term fiscal consolidation plan, benign outlook in global commodity prices (crude in particular), likely current account surplus in FY16, stable currency, record forex reserves, falling consumer inflation on the back of bountiful monsoon are some of the factors that will help India sail through. Any such correction induced by external factors should be used as an opportunity to buy stocks with a medium-term perspective," says Ajay Bodke, CEO & chief portfolio manager - PMS, Prabhudas Lilladher.