Sensex rises 489 points on Fed rate cut hint; Nifty ends above 11,800

Softening US bond yields boost risk appetite

The Indian benchmark indices rallied on Thursday following dovish statements by the Federal Reserve. The US central bank left interest rates unchanged on Wednesday, but indicated it would not hesitate to cut rates to boost the economy, amid growing uncertainties.

The Sensex ended at 39,601, with a gain of 489 points or 1.25 per cent, the most since June 3. The Nifty closed at 11,831, after rising 140 points or 1.2 per cent. The rupee ended at 69.44, compared to the previous day’s close of 69.7. Oil prices also firmed up, while gold prices climbed to their five-year highs.

Most Asian and European markets gained after 10-year US Treasuries slipped below 2 per cent, spurring risk appetite. Market players said the Fed could cut rates as early as next month. The last instance of the Fed lowering interest rates was 11 years ago, after the global financial crisis.

Fed Chairman Jerome Powell said the adverse impact of the US-China trade tensions on the US and other economies, as well as weaker-than-expected inflation, was a major factor behind the shift. Further, hopes of a breakthrough in the US-China trade talks, too, boosted global investor sentiment, said market players. “The markets have taken the removal of the word ‘patient’ from the Federal Reserve’s policy statement as a sign of an imminent rate cut. Investors believe that from now on, we will have a Fed that goes easy on its monetary policy,” said Jyoti Jaipuria, founder and MD of Valentis Advisors.

In the previous five trading sessions, the domestic markets had hit a downward slope on concerns over weak corporate fundamentals and the late arrival of the monsoon. In addition, India’s decision to slap higher retaliatory tariffs on 28 US products had triggered trade war concerns.

“Indian markets have been falling continuously for the last several days. A rally was due, and the Fed’s statement came as an excuse,” said Shankar Sharma, founder and chief global strategist, First Global.

“Today was just a relief rally. Going forward, corporate fundamentals will be the sole determinant of market direction. One can’t expect huge buoyancy unless there is significant revival in earnings,” he added. The Fed action will boost liquidity in emerging markets. However, the shift in policy stance is with the objective to tackle growing economic risks. Foreign portfolio investors sold shares worth Rs 438 crore on Thursday, while domestic investors were buyers to the tune of Rs 1,241 crore, showed provisional data by the exchanges.