Markets hit 9-month closing highs on Fed rate cut hopes, weak dollar

Domestic equities on Thursday closed at their highest levels in nine months, buoyed up by a decline in the US dollar and Treasury yields. 

Market traders increased bets on faster US interest rate cuts, following reports that American President Donald Trump may fast-track his nomination for the next Federal Reserve chief. Trump has been critical of the current Fed chair Jerome Powell for not pushing rate cuts. 

The BSE Sensex ended the day at 83,756, a gain of 1,000 points or 1.2 per cent. The Nifty 50 finished the session at 25,549, up by 304 points or 1.2 per cent. Both indices achieved their highest closing since October 1, 2024. The total market capitalisation of BSE-listed companies increased by ₹3.5 trillion to ₹457.5 trillion. 

Foreign portfolio investors (FPIs) were net sellers to the tune of ₹2,428 crore, while domestic institutional investors were net buyers worth ₹2,373 crore. 

Traders are now pricing in 63 basis points of rate cuts by the Federal Reserve, up from 51 basis points (bps) previously. This shift follows speculation that Trump may announce the next Fed chief in September, ahead of Powell’s term ending in May 2026. 

Last week, the Fed decided to keep interest rates unchanged at 4.25-4.5 per cent. Consequently, the dollar index fell by 0.5 per cent to 97.23, while the 10-year US Treasury yield declined by 2 bps to 4.27 per cent. This week, the 10-year bond yield has dropped by 10 bps. In the commodities market, Brent crude was trading at $66.5 per barrel, up 0.35 per cent. However, it has declined by 13.2 per cent over the week in West Asia.

 

“An interest rate cut is already factored into futures and bond prices in the US, indicating a prolonged period of lower interest rates. This is generally positive for emerging markets, as foreign investors may be willing to take on slightly higher risks to earn additional returns by investing in these markets. It also aids valuations, as the expected rate of return will decrease," said U R Bhat, co-founder of Alphaniti Fintech. 

Bhat added that the recent ceasefire between Israel and Iran has slightly improved the global market outlook. 

“FPIs may start buying, even if not immediately. There is hope that they will become buyers soon,” Bhat added. 

HDFC Bank, which gained 2.2 per cent, and Reliance Industries (RIL), which rose 1.9 per cent, were the biggest contributors to the Sensex's gains. RIL’s market capitalisation crossed ₹20 trillion for the first time after September 27, 2024. The market breadth was mixed, with 2,043 stocks advancing and 1,961 declining on the BSE. 

The Sensex is now just 2.4 per cent, and the Nifty 2.5 per cent, below their respective all-time highs. Investors are optimistic that the indices could scale new peaks on the back of strong domestic flows. 

“Overall, we expect the market momentum to continue, with Nifty likely to move upwards towards its previous all-time highs. This will be driven by healthy domestic macroeconomic conditions and a supportive global environment,” said Siddhartha Khemka, head of research and wealth management at Motilal Oswal Financial Services. 

On a technical basis, experts said, the market is expected to continue with upward momentum. “With no major resistance until the 25,700–25,750 zone, we expect this rally to extend by another 150-200 points on the upside. On the downside, support is seen around 25,300-25,350,” said Rupak De, senior technical analyst, LKP Securities.