Markets gain the most since June on Fed comfort

Trade agreements with China, short-covering aid rally

Indian markets on Thursday posted their biggest single-day gains in more than three months, mainly buoyed by the US Federal Reserve’s decision of not increasing interest rates. Optimism over the country’s trade ties with China and short-covering by traders, who had earlier sold on fears of an unfavourable call by the US Fed, also aided the rally.

The BSE Sensex rose 480.92 points (1.81 per cent) from its previous close to end at 27,112.2, while the NSE Nifty gained 139.25 points (or 1.75 per cent) to 8,114.8. The respective gains for both indices were the biggest since June 2. By absolute gains in terms of points, the rally was the biggest since May 12.

“The market was worried about the outcome of the US Fed meet and its impact. Since that event risk is over, the market has rallied. Going ahead, there might be short-term corrections before other big event risks but the overall outlook for equities remains positive,” said Edelweiss Securities CEO Vikas Khemani.

On the final day of its policy meet, the US Fed had on Wednesday vowed to hold interest rates near zero for a “considerable time”. It, however, lowered its monthly bond-purchase programme by another $10 billion and stayed on course to end this stimulus next month.

“Fed has clarified there will be some gap between unwinding of its bond-buying programme and an interest rate increase. This, coupled with the Chinese President’s visit to India and a commitment of big investments, enthused the market,” said Dalton Capital Advisors Managing Director U R Bhat.

Buying was seen across the board, with nearly 50 of the BSE-500 stocks gaining five per cent or more. The broad-based BSE small-cap and mid-cap indices rose 1.83 per cent and 2.7 per cent, respectively.

There were nearly three stocks gaining for every one that declined.

Most global markets also reacted positively to the Fed move but their rallies were not as strong as the Indian bourses’.

Analysts are hopeful that the Indian economy will next year be in a better shape to absorb the shocks emanating from an interest rate increase in the US.

“The recent sharp decline in commodity prices augurs well for India’s macroeconomic situation and earnings. In general, the lower prices will offset inflationary pressures elsewhere and reduce India's current account and fiscal deficits,” Sanjeev Prasad, senior executive director & co-head, Kotak Institutional Equities, said in a note.

Market players said foreign fund flows into India were likely to stay strong, given the various stimulus packages announced in geographies like Europe and Japan to spur economic growth.

Foreign institutional investors (FIIs), which have pumped a little more than $14 billion into Indian markets so far this year, have driven the nearly 30 per cent rally during the period. Among major global markets, India has been one of the biggest recipients of FII flows this year.

“Even if the US ends its stimulus programme, it is not much of a worry for India, as other regions like Europe and Japan continue to have loose monetary policy,” said Bhat.

All BSE sectoral indices gained on Thursday. Among index stocks, Hero MotoCorp gained the most (5.57 per cent), while DLF, Tata Motors and Larsen & Tourbo rose three per cent each.