Market rallies for 4th straight day as Fed meets

Positive sentiment on monsoon helps bring in domestic buyers

Indian markets continued their winning streak ahead of the US Federal Reserve’s announcement on Wednesday, even as foreign investors emerged as net sellers. The BSE Sensex was up 146.15 points, or 0.55 per cent over its previous close, to end at 26,832.66. The National Stock Exchange’s Nifty index, too, rose similarly to close at 8,091.55.

Positive sentiment about the monsoons helped bring in domestic buying, according to experts. Foreign portfolio investors’ net sale of Rs 940.91 crore was negated by domestic institutions, which emerged net buyers, spending Rs 1,447.07 crore. Sectors, which rose largely included defensive sectors such as consumer durables, health care and fast moving consumer goods; in addition to some traction in capital goods. Indices tracking these segments rose between one and 2.5 per cent.

“The monsoon that progressed at good pace has led to the markets being in green. The improved monsoon can act as a trigger for another rate cut. With improved monsoon projections, the worry of inflation has also gone down,” said Vaibhav Agarwal, vice president (research), Angel Broking.

The US Federal Reserve is set to announce its decision on increasing interest rates later in the day. Higher interest rates might make it more expensive for foreign institutions to borrow cheap money elsewhere and invest it in countries like India for higher returns.  More than half of foreign flows that Indian markets have received since liberalisation came after the financial crises, when global central banks reduced interest rates to near zero levels.  

Experts believe the Fed meeting would have limited impact on Indian equities if they defer an increase as expected. The market is expecting higher interest rates in the second half of the year, according to Piyush Garg, chief investment officer, ICICI Securities. “To some extent, a rate hike is factored in, though it is not expected in the current meeting,” he said, noting that India has held its own better than some of the other emerging markets in currency terms.

Deutsche Bank’s June 16 India Strategy report also noted that India is likely to outperform other emerging markets. “Investors must prepare for a more muted environment for foreign inflows in the second half of 2015. While India will not stay immune to global volatility in absolute terms, on a relative basis, India might outperform most of its emerging market peers,” said a report authored by research analysts Abhay Laijawala and Abhishek Saraf.

A better Current Account Deficit figure has helped, noted the report. It has fallen from 4.8 per cent of Gross Domestic Product in 2013 to 0.2 per cent now. Forex reserves are up $61 billion since the last time the Fed talked about raising rates. Sentiment about the government and the Reserve Bank of India is also better than it was then, it said.

Nevertheless, Deutsche reduced its December Sensex target from 33,000 to 31,000 pointing to reasons, including lack of earnings traction and muted foreign flows.