Indices log best 1-day gains in five weeks, soar 2.3% as bond yields cool

FPIs buy shares worth Rs 1,345 crore

India’s benchmark indices rallied over 2 per cent on Tuesday, mirroring gains in other global markets, as a sharp decline in the US Treasury yields following soft economic data triggered hopes that the Federal Reserve would take a less aggressive path to monetary tightening.

After climbing to 3.95 per cent last week, the yield on the 10-year US bond slipped to 3.62 per cent on Tuesday following the lower-than-anticipated US manufacturing data. Meanwhile, the Reserve Bank of Australia raised interest rates by a quarter point against the expectation of a half-point increase, sparking speculation that other global central banks too may pivot their focus and the rates may peak soon.

The Sensex rose 1,276 points, or 2.3 per cent, to 58,065, while the Nifty50 index closed at 17,274, with a gain of 387 points. Both the indices logged their highest single-day gains since August 30. Foreign portfolio investors bought shares worth Rs 1,345 crore on Tuesday after dumping over Rs 13,000 crore worth of shares in September.

US stocks surged for a second straight day, while bond and oil prices also trended upward. The Dow Jones and the Nasdaq were up about 2.5 per cent and 3.2 per cent, respectively, as of 21:35 IST.

“The Street is expecting that the rate hikes in developed markets may be closer to peak in the near term after the Reserve Bank of Australia’s less-than-expected rate hike," said Deepak Jasani, head of retail research, HDFC Securities.

The US manufacturing activity in September grew at its slowest pace in nearly two and a half years, a likely impact of the Fed’s aggressive monetary tightening.

“The markets were oversold. The US manufacturing data was lower than expected. And everyone is extrapolating that as a good sign for markets and hoping that the Fed may not be as aggressive -- perhaps not in November, but later in the year or the next year. The negatives from the UK have been alleviated. So we had the dollar weakening and bond yields coming down,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

On Monday, New York Fed President John Williams noted that while tighter monetary policy had begun to cool demand and reduce inflationary pressures, the central bank’s job “is not yet done”.

Some investors are now hoping that the Fed will hike rates by another 125 basis points by March against the widely expected 165 basis points.

The dollar index, a gauge which measures the value of the dollar against other currencies, fell by 0.5 per cent and ended the session at 111.2. The pound rebounded after the UK government's withdrawal of a controversial tax-cut plan mitigated fears about the government's fiscal situation.

Crude prices rose by 3.2 per cent and ended the session at $89 per barrel amidst speculation that the Organization of Petroleum Exporting Countries (OPEC) and its allies will consider cutting their output by one million barrels per day when they meet this week.

Financials and technology stocks contributed the most to the Sensex gains on Tuesday.