 "Equity markets extend gains as oil prices, interest rate concerns ease")
The Indian equity benchmarks saw gains for the second consecutive session on Wednesday, buoyed by optimism about no further interest rate hike by the Federal Reserve for now and easing crude prices.
The Sensex rose 394 points or 0.6 per cent to close at 66,473, while the Nifty50 ended at 19,811, up 121 points or 0.6 per cent.
The sentiment was boosted by Atlanta Federal Reserve President Raphael Bostic’s comments that he doesn't believe further interest rate hikes are necessary and that the current policy is restrictive enough to bring inflation back to the Fed's targeted levels. These comments echo similar dovish statements by two other Federal Reserve officials this week. Analysts suggest that monetary policymakers believe tighter financial conditions due to the recent surge in US Treasury yields have reduced the need for additional rate hikes.
Federal Reserve’s Vice-chair Philip Jefferson on Monday stated he would remain conscious of tightening monetary conditions while assessing the future of monetary policy. Similarly, Lorie Logan of the Federal Reserve Bank of Dallas said the recent rise in bond yields may mean less need for the US central bank to raise rates any further.
Last week, San Francisco Fed President Mar Daly said if financial conditions remain tightened, the need for the American central bank to take further action is diminished.
The 10-year US Treasury yield eased to 4.5 per cent on Wednesday. Brent crude prices eased to below $88 per barrel on Wednesday. However, investors remain wary of an escalation of the conflict between Hamas and Israel pushing up crude oil prices.
“Iran has, so far, not been drawn into the conflict. The markets would be in a wait-and-watch mode until there is some incremental information," said U R Bhat, co-founder of Alphaniti Fintech. He said if the conflict escalates, bond yields will come down as there will be a rush to safe-haven assets, but if the status quo prevails, bond yields will remain elevated and give credence to inflation concerns.
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Some experts believe heavy selling due to the escalation of the conflict will present a good buying opportunity in Indian equities.
"We expect the Indian equity market to remain well supported, as buying support may emerge on sharp corrections. We maintain our constructive view on Indian equities ahead of the September quarter earnings and believe that domestic-focused cyclical sectors like banks, NBFCs (non-banking financial companies), capital goods, and infrastructure could see strong performance," said Jitendra Gohil, an investment strategist at Kotak Alternate Asset Managers.
The conflict in West Aisa adds another layer of uncertainty for equity investors grappling with macroeconomic uncertainties in the developed world and hawkish central banks.
The market breadth was strong, with 2,349 stocks advancing and 1,339 declining. Four-fifths of Sensex stocks rose. Reliance Industries, which rose 1.6 per cent, was the biggest contributor to Sensex gains, followed by HDFC Bank, which rose 0.9 per cent.
Going forward, factors such as September quarterly results, macroeconomic data, and statements of monetary policy officials shall determine market trajectory.