Lower chances of US rate hike lifts Indian equities (Weekly Review)

Lowered chances of a US rate hike, coupled with a strengthening rupee, propelled the bellweather indices of the Indian equity markets to gain three percent each in the just-concluded weekly trade.

Furthermore, a Bombay High Court judgement in favour of telecom firm Vodafone in a tax dispute case and the continued positive sentiment unleashed by a massive monetary easing by the country's central bank on September 29 supported the markets' gains.

However, profit-booking and caution over the upcoming quarterly results forced the markets to cede some of its gains.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE), rose 858.56 points or 3.17 percent at 27,079.51 points from its previous weekly close at 26,220.95 points.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) too made gains during the weekly trade ended October 9. It rose 238.8 points or three percent to 8,189.70 points.

"The equity markets started on a strong footing with gains in the first three straight trading sessions. Profit booking was witnessed at higher levels on Thursday (October 8)," Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.

"However, dovish minutes of the Federal Reserve's September meeting pushed the markets higher on Friday resulting in a strong positive close for the markets."

The US Fed's FOMC (Federal Open Market Committee) minutes which were released on late September 8 had lowered chances of a rate hike in October.

The FOMC minutes were of the September 16 meeting in which the US Fed decided not to hike lending rates. The US Fed is slated to conduct its FOMC meet on October 27-28.

The FOMC minutes assumes significance as higher interest rates in the US are expected to lead away FPIs (Foreign Portfolio Investors) from emerging markets such as India.

Even the last month, the US jobs data released during the week under review is expected to deter the US Fed from raising rates.

The US economy added just 142,000 jobs from 173,000 jobs created in August. The August figurers are being revised downwards.

"The markets rose on the back of dovish FOMC minutes which lowered the chances of an October rate hike there. The Bank of England's monetary policy decision too uphold the current lending rates also cheLowerered the markets and gave a positive cue," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

"The continuation of the positive momentum from the Reserve Bank of India's (RBI) monetary easing led the prices higher and increased the risk appetite of the investors," James added.

Nitasha Shankar, vice president of research with YES Securities, told IANS that the Indian markets participated in the global rally with metals, auto and auto ancillaries leading the way.

"Broader markers outperformed with maximum gains coming from metal, sugar, auto and energy stocks. Tech (technology, entertainment and media) stocks remained under pressure," She said.

The rupee, too, supported the markets. It closed the just-concluded trade at 64.74 to the US dollar. The rupee strengthened by 77 paise in the week under review.

The rupee had closed at 65.51 to a US dollar in the week ended Oct 1.

Another major boost came in from the Bombay High Court's verdict in favour of Vodafone

restored confidence of foreign portfolio investors (FPIs) in Indian tax regime.

"The High court verdict in favour of Vodafone also sent out a positive signal among FPIs," Agrawal added.

Notwithstanding the ongoing rally, markets had to give up some of its gains on the back of profit-booking and caution over the upcoming quarterly results.

Both bellwether indices receded after a key data showed a fall in services output for September and the International Monetary Fund (IMF) downgraded India's growth to 7.3 percent for the current fiscal.

Another major dampener came as international crude oil prices rose sharply to around $50-mark.

(Rohit Vaid can be contacted at rohit.v@ians.in)