Markets rise as Fed chief Jerome Powell's comments fuel global rally

Nifty rises 0.75% to reclaim 25,000

Indian equity benchmarks gained on Monday after the Federal Reserve Chair Jerome Powell's dovish statement at the Jackson Hole meeting fuelled a global rally.

The Sensex ended the session at 81,698, with a gain of 612 points or 0.75 per cent, its fifth straight day of gain. The Nifty ended the session at 25,011, gaining 188 points or 0.8 per cent. This was the eight straight day of gain— its longest daily winning streak since July 6, 2023.

The Nifty also closed just shy of its record closing high of 25,010.9 on August 1. Meanwhile, the Sensex is 169 points or 0.3 per cent away from its all-time closing high.

 

The total market capitalisation of BSE-listed firms ended at Rs 462.3 trillion, with a gain of Rs 2.3 trillion. Foreign portfolio investors bought shares worth Rs 483 crore, while domestic institutional investors also pumped in Rs 1,870 crore.

Powell said on Friday that the time has come for the US Central Bank to cut rates. The Fed chief said that the pace of rate cuts will depend on incoming data. Further, Powell said he was confident that inflation is on a sustainable path to reaching the Fed's target of 2 per cent.

Though the Fed chief's comments did not clarify what the US Central Bank will do after the September meeting, it cheered markets. The Fed has held its benchmark rates in the range of 5.25 to 5.5 per cent, its highest levels in more than two decades.

The recent weak data on employment has led to criticism that the Fed's high rates may push the US economy into recession. Post Powell's speech, the debate has shifted to the size of the rate cut, with some betting for a 50 basis point cut in September. However, a 50 bps cut would indicate that the US economy is not that resilient.

“Indian equities celebrated the festive day by regaining the 25,000-mark after the US Fed indicated that interest rate cuts are most likely to start from its September meeting. The index is now just inches away from its life high. We expect the momentum to continue towards new highs with broader market participation. This week, the market will focus on India and the US GDP data, derivatives monthly expiry, and other global cues,” said Siddhartha Khemka, head of retail research for Motilal Oswal Financial Services.

The gains in the global markets were capped by escalating tensions in the Middle East after an Israeli attack on Hezbollah's missile launchers in Lebanon has also made investors nervous. The Brent crude was trading at $80 per barrel, a 1.3 per cent gain on Monday.

“We maintain our optimistic outlook given the favourable global cues and recommend a ‘buy on dips’ strategy. While there has been some selective participation from the banking sector, more decisiveness among major private banks is needed to maintain the momentum. Traders should adjust their positions accordingly, with a focus on stock selection,” said Ajit Mishra, SVP of research at Religare Broking.

Most of the gains in Sensex were driven by HDFC Bank and Reliance Industries. IT firms, which earn a huge chunk of their revenues from the US, also contributed to gains.

‘Fed cuts to help ‘laggard’ Asian mkts’

Impending rate cuts by the US Federal Reserve is positive for Asian markets, however, the “laggard” markets will gain more, said Nomura in a note, while upgrading Malaysia and Indone­sia while downgrading China.
 

The brokerage has maintained its overweight stance on India. “We think the relatively safe harbour is likely to be markets and sectors that are uncrowded (parts of ASEAN) and more domestically driven markets (India/ASEAN). Investors in this case have to be far more defensive and cut back further on Asian cyclical markets such as in North Asia,” Nomura Strategist Chetan Seth wrote in a note.
 

ASEAN, or The Association of Southeast Asian Nations, is an economic union of 10 Southeast Asian countries, which compri­ses Indonesia, Malaysia, Philippi­nes and Thailand.  Nomura has recommended 100 basis points weightage on India vis-à-vis its weight in the MSCI Asia Ex-Japan index.