Market sentiment gets a twin boost

After Rajan's pep talk, Yellen bats for QE3 to be continued

Stock markets firmed up on Thursday, ending their seven-day losing run, after Janet Yellen, nominee for the US Federal Reserve chairperson, indicated she was for an easy monetary policy till the economy recovered further. Her remarks came after Reserve Bank of India Governor Raghuram Rajan on Wednesday evening announced bond purchases, bringing yields down early on Thursday.

But, equity benchmarks gave up a portion of their early gains, while bond prices dropped, as the higher-than-expected October inflation data led to some profit booking. Financial markets will remain closed on Friday on account of Muharram.

The BSE Sensex rose 205 points, or one per cent, from its previous close to end the day at 20,399.42 — off the day’s high of 20,568.99. The NSE Nifty gained 66.55 points, or 1.11 per cent, to close at 6,056.15, 45.5 points lower than the intra-day high of 6,101.65.

Encouraged by Yellen’s comments — which suggested the Quantitative Easing (QE) 3, the US Fed’s massive bond-buying programme, would stay for a while — other Asian markets also gained. She had said the US unemployment rate in October, at 7.3 per cent, was still high. It reflected a labour market and economy far short of potential, triggering weakness in the dollar against most currencies.

Later, during testimony to the Senate Banking Committee, she said: “I consider it imperative that we do what we can to promote a very strong recovery.”

Rajan’s efforts to talk up the rupee on Wednesday bore fruit on Thursday, with the Indian currency gaining 20 paise against the dollar to end the day at 63.12.

“What the Reserve Bank has tried to do is shift the focus on the rupee from continued negative sentiment to improving fundamentals, including shrinking CAD, lower debt ownership and flows into the capital account,” said Hitendra Dave, head of global markets, HSBC India.

Foreign institutional investors (FIIs) cheered the comments from Yellen and Rajan, extending purchases of stocks to a 27th straight trading day. FIIs net-bought shares worth Rs 970 crore, while their domestic counterparts sold to the tune of Rs 410.81 crore, according to provisional data. So far in November, FIIs have bought shares worth close to Rs 2,000 crore after pumping in Rs 18,000 crore in October.

“While offshore equity investors are taking a more constructive view on India — reflected in their continued inflows in the past 30 days, offshore currency market players are still in the June-August sentiment,” said Dave.

BSE’s Banking index rose 2.7 per cent after RBI said it would buy bonds worth Rs 8,000 crore. The move triggered a rally in bonds, raising hopes losses on banks’ bond portfolio would be contained. Among private banks, Axis Bank rose 6.5 per cent, YES Bank gained 5.6 per cent and ICICI Bank advanced 3.6 per cent. Public-sector banks like Bank of India, PNB and Union Bank rose between three and five per cent each.

Some analysts expect the markets to move in a tight range.

“Near-term trends will still remain range-bound, till the time we see clarity on any growth revival in the first quarter of calendar year 2014 or election results in the second quarter,” said Rajat Rajgarhia, director (research), Motilal Oswal Financial Services.