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After witnessing losses for two consecutive days, India’s benchmark indices reported a sharp rebound on Thursday after US Federal Reserve’s dovish stance and a retreat in the US bond yields buoyed investor sentiment.
The 30-share BSE Sensex rose 490 points, or 0.8 per cent, to end the session at 64,081, while the Nifty50 index gained 144 points, or 0.8 per cent, to end the session at 19,133 points.
The US monetary policymakers left its benchmark rate unchanged on Wednesday.
However, they hinted in a post-meeting statement that a recent rise in longer-term Treasury yields reduces the need for further hikes.
The Fed, however, has left the door open for another increase if the situation warrants.
The 10-year US Treasury yields fell below 4.66 per cent from 4.93 per cent ahead of the Fed's rate decision.
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In October, the 10-year yields breached 5 per cent, after 16 years, amid fears of further monetary policy tightening by the Federal Reserve.
The Federal Reserve chief Jerome Powell, while speaking to reporters, said the US central bank would make decisions from meeting to meeting, and it would have a range of data on unemployment, inflation, financial conditions and geopolitical risks before its December meeting.
Powell added that the Fed is keeping a close watch on the Israel-Hamas conflict to gauge its economic implications.
“In line with consensus expectations, the Federal Reserve kept the rates unchanged. This resulted in lower bond yields and a rise in stock prices. While it is more likely to be cautious going forward in increasing rates, challenges of a higher inflation trajectory are likely to linger on,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS.
“The Federal Reserve is expected to pause in December and the first half of next year, which will help the equity and bond markets, but rising term premiums could weigh on the financial markets. Overall, the macro situation remains challenging, but it will likely ease over the next 12 to 18 months,” Kulkarni said.
The goods and services tax (GST) collections in October, which stood at Rs 1.72 trillion, the second highest-ever, also boosted sentiment.
“The domestic macros are favourable with positive auto numbers, a surge in GST collection, good factory data and better than estimated Q2 quarter earnings,” said Vinod Nair, head of research, Geojit Financial Services
Elevated US bond yields and persisting worries from the Israel-Hamas war led investors to flee risky assets last month.
In October, the BSE benchmark Sensex declined 3 per cent in its biggest monthly fall since December 2022. Foreign portfolio investors (FPIs) sold domestic shares worth Rs 21,680 crore, the most since January.
The gains on Wednesday notwithstanding, investors continue to worry about the fallout of the war in West Asia.
Investors are concerned that the conflict could snowball into a wider regional conflict involving Iran and other oil-producing nations, which could further spike prices of crude.
A rise in crude prices could complicate the task of central banks across major economies, which are on a historic rate-tightening campaign to bring inflation back to the desired levels.
“It is too early to say that we are out of the woods, multiple hurdles between the 19200-19400 zone persists for the Nifty. We thus reiterate our view to follow a stock-specific approach and focus more on overnight risk management,” said Ajit Mishra, SVP- technical research, Religare Broking.
Barring two, all Sensex stocks ended with gains. IndusInd Bank rose the most at 2 per cent, followed by Tata Motors and Sun Pharma, which gained over 1.4 per cent each.
Tech Mahindra fell 0.8 per cent and Bajaj Finance declined 0.3 per cent. All BSE sectoral indices ended with gains, with BSE realty gaining the most with 2.6 per cent.
