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Benchmarks Sensex and Nifty jumped over a per cent each for the second straight day to cap their seventh straight weekly advance.
A dovish pivot by the US Federal Reserve and a sharp retreat in bond yields spurred risk appetite across the globe.
The Sensex rose 970 points, or 1.4 per cent to close at 71,484, while the Nifty ended the session at 21,457, with a gain of 274 points or 1.3 per cent. The latest up move was underpinned by robust inflows from foreign portfolio investors (FPIs) and sharp rally in technology stocks.
FPIs poured Rs 9,239 crore in domestic stocks, while domestic investors took money off the table to the tune of Rs 3,077 crore. Infosys and Tata Consultancy Services (TCS) rose 5 per cent each and made a 418-point contribution to Sensex gains.
For the week, the Nifty advanced 2.3 per cent. In the past seven weeks, the 50-share index has risen 12.3 per cent. This is its longest weekly advance since December 2020, when it had jumped 18 per cent after seven straight weeks of gains.
So far in December, the Sensex has gained 6.7 per cent, while the Nifty has advanced 6.5 per cent. If they hold on to the gains, this will be their best monthly advance since July 2022.
On Wednesday, the Fed kept its benchmark rates at a 22-year high but gave a clear signal that cuts are on the horizon.
Some central bank officials hinted at a 75-basis point (bps) rate cut next year. Also, the optimism that the US economy will see a soft landing — a term used to denote victory over inflation without much harm to the economy — has also boosted sentiment.
“Investors expressed confidence that clouds over US economic growth would dissipate in H2CY24, anticipating a soft landing facilitated by normalisation in monetary policy. However, we expect a near-term consolidation in the market due to elevated valuations, concerns over El Nino, and a slowdown in world gross domestic product (GDP),” saidVinod Nair, head of research at Geojit Financial Services.
Experts said Fed’s hawkish pivot is more of a sentimental boost for the Indian markets and will have a limited direct impact on the real economy given the low level of corporate leverage.
“Fed's newly-minted dovishness adds another bullish leg to the market. The earnings impact of lower rates is muted and is likely to play out with higher FPI flows driving the re-rating. This combines with post-election policy stability and continued strength in the capex and manufacturing cycle. Expect continued strength in equities and use any technical corrections to add exposure,” said Seshadri Sen, head of research at Emkay Global Financial Services.
However, European Central Bank officials’ caution has tempered market sentiment. On Thursday, the bank held its rates for the second time. And its chief, Christine Lagarde, said policymakers must not get complacent following the recent easing of inflation. Indian equity markets have also been rallying for the last three weeks on the back of hopes of rate cuts, policy continuity and strong macro numbers.
Last week, the Reserve Bank of India (RBI) revised GDP projections while maintaining the status quo on interest rates.
The RBI on Friday raised its GDP forecast for the current financial year to 7 per cent from 6.5 per cent earlier. Its revised estimates came after better-than-expected growth during the July-September quarter.
The market breadth was favourable, with 1,969 stocks advancing and 1,801 declining. Four-fifths of Sensex stocks gained. Infosys rose 5.2 per cent and contributed the most to Sensex gains.
