 "Shares rally after Fed's expected rate hike")
Indian equities rose for a fourth straight session after the US Federal Reserve expectedly raised its benchmark interest rate by 25 basis points (bps), the first such raise in almost a decade. Asian and European markets rallied as well, after the Fed soothed nerves by indicating further increases would be gradual.
“The hike was on expected lines and factored in by the markets,” said Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services. “The market was oversold and what we are seeing is a relief rally.”
Added S Naren, chief investment officer, ICICI Prudential MF: “We always believed that the risk aversion towards Indian markets triggered by a likely increase in policy interest rates by the Fed might not be deep, as there is still a huge gap between global and domestic rates, and India has a very low current account deficit.” (GOVERNORSPEAK)
The Fed had taken its target interest rate to zero in 2008 as the US slid into recession. Its two-day meet ended Wednesday. On Thursday, the benchmark BSE Sensex ended the day higher by 309 points, or 1.2 per cent, to 25,803, while the National Stock Exchange’s Nifty rose 93 points or 1.2 per cent to 7,844.3. In sessions, the Sensex has gained 759 points or about three per cent. The India VIX Index declined 15 per cent to its lowest close since April 1.
According to a note by Bank of America Merrill Lynch, the Fed’s decision offered few surprises and was a 'dovish hike'. “The statement underscored a gradual pace in future rises. The dot plot continued to show that the Fed expects to hike by 100 bps next year, much slower than history but still well above market expectations. At the same time, the statement’s more optimistic tone was welcomed by the equity market,” said the note.
“(Janet) Yellen (the Fed chief) has stated she will look at the US as well as the global economy before taking a call on further interest rate hikes. This means rates might not go up in a hurry, which is good news,” said Andrew Holland, chief executive, Ambit Investment Advisory. “Also, the dollar is likely to weaken in the short term. A weakening dollar will help support global commodity prices, a positive for emerging markets.”
The global sentiment had spurred foreign investors to pull out money from the Indian market. On Thursday, instead, foreign institutional investors (FIIs) bought shares worth Rs 638 crore, while domestic institutional investors sold shares worth Rs 366 crore, provisional data shows. In December, FIIs have sold shares worth Rs 3,300 crore, paring year to date purchases to Rs 14,800 crore.
In August, foreign investors had pulled out a record Rs 17,200 crore from the Indian market; in September, they took out Rs 5,695 crore. This was followed by net purchase of Rs 5,064 crore in October. The Sensex had slid 5.9 per cent in the three months to September, its steepest quarterly loss since 2011.
Key Asian indices ended in the green on Thursday, with the Taiwan SE index, Nikkei 225 and Shanghai Composite gaining a little more than 1.5 per cent each.
European indices were also trading firmly in the green, with the DAX and CAC 40 trading up about two per cent at 5 pm India time.
Back home, market breadth was strong, with 1,946 advances compared with 751 declines on Thursday. Twenty five of the 30 Sensex components ended in the green. All the 12 BSE sectoral indices ended in positive territory, with the BSE Metal rising the the most at 2.4 per cent.
Experts said the government would have to push its reform agenda to spur growth and revive investor confidence, to ensure India withstands the global turbulence triggered by worry over a China slowdown.
“The recent volatility is more because of commodity prices, which are at multi-year lows. Till the time commodity exporters are reeling under the pressure, the markets might remain volatile, and are likely to calm only when commodity prices stabilise,” said Naren.
