Markets surge on Fed Reserves rate cut buzz

Domestic stocks, led by banks and small caps, surged "" the most in more than a week "" after investors betted on a minimum rate cut of a quarter points by the Federal Reserve. The US central bank's action is likely to trigger a similar move by the Reserve Bank of India sooner or later, helping the banks to lend more.

But experts say that nothing less than a 50 basis points cut would cheer the market tomorrow.

"Markets have reacted with too much optimism to a possible rate cut and there is a possibility of a downside after the announcement expected later today. The coming days would see more action in small and mid-cap stocks," said Harindra Kumar, head of research and advisory of ICICI Direct.

The benchmark Sensex gained by 164.69 points, or 1.06 per cent, to 15,669.12. The broader S&P CNX Nifty was higher by 51.55 points, or 1.15 per cent, to 4546.20.

The BSE Bankex, which tracks the State Bank of India, ICICI Bank, HDFC Bank and Axis Bank, among others, shot up by 2.47 per cent to emerge as the top gainer among the indices. All the 18 bank stocks on the index advanced today.

ICICI, which gained Rs 33.15, or 3.7 per cent, to Rs 927.90, was the sharpest riser among the 30 Sensex stocks, followed by State Bank of India (2.85 per cent to Rs 1,693.40), Bharti Airtel (2.3 per cent to Rs 833.1), Reliance Energy (2.08 per cent to Rs 926.65) and ONGC (1.80 per cent to Rs 850.85).

The BSE Mid-cap Index was up by 1.01 per cent, or 69 points to close at 6,985, while the Small-cap index gained by 1.63 per cent, or 140.66 points to 8,780.89 points. The market breadth was positive with 63.91 per cent or 1813 advances and 968 stocks or 34.12 per cent ending lower. Arpit Agarwal, head of research at Arihant Capital, said a 50 basis points cut by the Fed will cheer the markets. But going forward, the earnings growth and economic expansion will drive the domestic markets. "More than the rate cut, people would be keenly watching the qualitative statements by the Fed chairman, Ben Bernanke." he said.

An exodus of funds from credit markets, following the rising defaults on higher-risk home loans in the US, has fuelled concerns of a recession in the US economy and global economic slowdown.

The resultant equity sell-off in July wiped off at least $5.5 trillion in market capitalisation worldwide.

Agarwal felt that the market had discounted the crude oil prices, which surged to a record high of $81 a barrel on Tuesday. But concerns are mounting over a winter supply squeeze in US.

The Asian stock markets closed on a weak note. Nikkei was the top loser, down by 2.02 per cent to 15,801 points. Hang Seng was down by 0.09 per cent to 24,576 points, while Shanghai Composite closed flat at 5,425 points, up by 0.07 per cent.