Weekend high: Strong FPI inflows lift benchmark equities, Indian rupee

Foreign investors bet Rs 14,064 cr, most in a day in 3 yrs; rupee posts biggest weekly gain in '24

Buoyed by robust buying from foreign portfolio investors (FPIs), Indian equity benchmarks soared to new heights on both intraday and closing levels on Friday. Strong foreign inflows also bolstered the rupee, which reached a two-month high against the dollar.

FPIs recorded their largest single-day equity purchase since  February 24, 2021, with net investments totalling Rs 14,064 crore. They flocked to Indian stock markets, spurred by expectations of at least two more rate cuts by the US Federal Reserve in the coming months. Their appetite for riskier assets was further fuelled by a decline in US jobless claims and the rebalancing of the FTSE All World and FTSE All Cap indices.

The Sensex closed at 84,544, up 1,360 points or 1.6 per cent, while the Nifty 50 gained 375 points, closing at 25,791, up 1.5 per cent. Both indices posted their best single-day gains since 12 September. Over the week, the Sensex rose 2 per cent and the Nifty 50 1.7 per cent, marking their second straight week of gains.

The total market capitalisation of all BSE-listed companies reached Rs 472 trillion, with Rs 6.2 trillion added on Friday alone.

In September, so far, FPIs have net bought equities worth Rs 46,260 crore, the highest since June 2023. This has also supported the rupee, which saw its strongest weekly gain (0.4 per cent) against the US dollar this year.

On Friday, the rupee appreciated to as much as 83.48 against the dollar, before settling at 83.57, up from 83.69 the previous day. This marked the rupee’s fifth consecutive day of gains, largely tracking the rise in other Asian currencies, said market participants.

The Reserve Bank of India (RBI), however, intervened in the foreign exchange market by buying dollars, curbing further rupee appreciation. “The rupee extended its gains as inflows from various segments hit the market. The RBI’s intervention was limited, aimed only at curbing volatility as the dollar fell against most currencies,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP. He added that the rupee is expected to maintain a positive bias, with strong resistance around 83.55 per dollar.

V R C Reddy, head of treasury at Karur Vysya Bank, noted that the RBI would likely continue buying dollars, with technical near-term support for the dollar-rupee exchange rate in the 83.50-83.55 range. So far this month, the rupee has appreciated 0.37 per cent, altho­ugh it has depreciated 0.4 per cent over the course of 2024.

The US dollar index, meanwhile, has declined to 100.50 following the Federal Reserve’s decision to cut interest rates by 50 basis points.

The Federal Reserve’s recent rate cut, its first in four years, coupled with a decline in unemployment benefit claims, has raised hopes that inflation in the US could moderate without triggering a recession. Unemployment benefit claims for the week ended September 14 were at their lowest since May, signalling a resilient labour market despite slower hiring.

The Fed’s rate cut also reassures other central banks, encouraging them to proceed with their own cuts without fear of capital outflows. Market participants expect the RBI’s Monetary Policy Committee to create room for a rate cut with a shift in policy stance in October.

“There is anticipation of more rate cuts (by the Fed) — 50 basis points in November and another 25 basis points in December,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies. “The soft landing scenario has played out nicely, and there is hope the RBI might cut its (repo) rate going forward.  If we get the 75 basis points cut in the short term (by the Fed), it should weaken the dollar, which is good for emerging markets. We will keep hitting new highs, led by financial stocks.”

Hopes for Chinese stimulus further buoyed market sentiment, driving a rally in Indian metal stocks. The BSE Metal index, which tracks metal shares, surged 1.8 per cent, as reports indicated China might lift restrictions on home purchases in its megacities.

Despite the optimism, concerns remain over the US economy, with large corporations like FedEx missing profit estimates and issuing warnings about slowing business.

“The rate cut is a way of boosting the US economy, which is not in great shape. It is not a great occasion to rejoice. The obvious silver lining is that investors in the US bond market may get lower returns and shall be willing to take higher risks, which means that they may invest in emerging markets. India could be a possible investment destination,” said U R Bhat, co-founder of Alphaniti Fintech.

From the 30 Sensex firms, Mahindra & Mahindra jumped over 5 per cent. JSW Steel, ICICI Bank, Larsen & Toubro, Bharti Airtel, Nestle, Adani Ports, Hindustan Unilever, HDFC Bank, Tech Mahindra, Maruti, Kotak Mahindra Bank and Tata Steel were the other big gainers.

State Bank of India, IndusInd Bank, Tata Consultancy Services and Bajaj Finance were the laggards