Indices hit new highs on volatile day; Rupee, government bonds gain

While benchmark indices rallied close to 1 per cent in early trade and made new record highs, valuation concerns and a sharp selloff in the broader markets led to profit-taking

Benchmark indices Sensex and Nifty posted tepid gains on Thursday, even as the US Federal Reserve’s move to cut rates by an aggressive 50 basis points propped up equity markets worldwide.

While benchmark indices rallied close to a per cent in early trade and scaled to record highs, valuation concerns and a sharp selloff in the broader markets led to profit-taking. 

The 30-share BSE Sensex ended the session with 0.3 per cent gains at 83,185. The Nifty 50 went up by 0.15 per cent to close at 25,416.

The Sensex closed 0.7 per cent lower from the intraday high of 83,774, the Nifty 50 declined by nearly 0.8 per cent from a high of 25,612.  

In comparison, major markets in Asia and Europe logged in gains of over 1 per cent.

The US rate cut impact was more visible in the currency and debt market.

Rupee and government bonds strengthened on Thursday after the US Federal Reserve’s decision to cut key interest rates by 50 basis points, said market participants. Rupee appreciated by 8 paisa to settle at 83.69 against the greenback, while the 10-year benchmark government bond yield settled at 6.76 per cent, the lowest since February 25, 2022.

“Market is noticing that since the curve is already flat, demand is strong, rates are coming down, there are chances that the RBI might also give in to this and may cut rates or at least give some indication of cutting rates. I am expecting a change in stance in October,” said Naveen Singh, vice-president of ICICI Securities’ primary dealership.

“It is not necessary that they will cut rates in December if they change the stance in October, they might push the rate cut to February too, but in the next policy they might open the space for rate cut,” he added.

Gold prices, which have an inverse correlation with interest rates, also approached new highs. 

According to experts, the muted equity market reaction in India to the US Fed rate cut was due to elevated equity valuations.

Fed chair Jerome Powell emphasised that the decision to start with a 50 basis point cut is not an indication of a faster pace for future cuts and future cuts will be data dependent. 

Government officials played down the impact of the Fed easing cycle on India.

“The impact of the US Fed’s rate cut might be muted in India as much of it was already priced in,” Chief Economic Advisor V Anantha Nageswaran said.

While the Economic Affairs Secretary Ajay Seth said the Fed rate cut would not have a significant impact on foreign inflows into India.

“It is a positive for the global economy, including the Indian economy. It is a 50 basis point (bp) cut from a high level. I don't see that making any significant impact on inflows. We have to see from where the US interest rates levels are. We have to see how other economies' markets behave,” Seth said.

Foreign portfolio investors (FPIs) were net sellers as they pulled out Rs 2,550 crore, shows provisional data from exchanges. Domestic institutional investors (DIIs) bought equities worth Rs 2,013 crore.

Most IT stocks, which recorded a sharp decline on Wednesday, extended their losses with the Nifty IT index declining 0.34 per cent, weighed down by 0.9 per cent in TCS. HCL Tech, Tech Mahindra, Wipro and Mphasis also closed lower.

Broader market indices posted a decline with the Nifty Midcap 100 index closing 0.67 per cent lower and Nifty Smallcap 100 index falling 1.26 per cent. The indices were down over 2 per cent intra-day trade but recouped some losses as buying emerged at lower levels. The decline was led by telecom sector companies.

Vodafone Idea fell nearly 20 per cent, while stocks like Indus Towers, GTL Infrastructure and Mahanagar Telephone Nigam declined over 3.5 per cent.  The market breadth was weak with only 1,246 stocks advancing on the BSE, while 2,734 ending with losses

The fall in the broader market wiped out Rs 2.3 trillion from the market capitalisation (mcap) of BSE listed firms. The mcap stood at Rs 465.5 trillion on Thursday, as compared to Rs 467.7 trillion on Wednesday.

“The dot plot, economic projections, and Powell’s press conference were relatively hawkish, implying that the decision to cut 50 bp today was a one-off move,” wrote David Seif, chief economist for Developed Markets, Nomura, in a note. The brokerage expects 25bp cuts in November and December.

In an earlier note, Nomura said “laggard” markets in Asia could gain more on account of the Fed cuts.