Bulls charge on D-Street as Fed signals three rate cuts; Sensex up 539 pts

The domestic equity markets on Thursday rose, joining a global rally, as the US Federal Reserve projected faster than expected growth for the American economy and at the same time stuck to its plan to reduce borrowing costs.

The Sensex closed at 72,641, gaining 539 points, or 0.7 per cent. The Nifty finished at 22,012, with a gain of 173 points, or 0.8 per cent.

The market capitalisation of BSE-listed firms rose Rs 5.7 trillion. The broader markets outperformed with the Nifty Smallcap 100 and Midcap 100 indices rising around 2.5 per cent each.

The US Federal Reserve on Wednesday kept the rates unchanged in the range 5.25-5.5 per cent, the highest since 2001, for a fifth time in a row. But they kept their outlook for three rate cuts this year. There were doubts about the outlook for rate cuts after the recent inflation. However, Fed Chairman Jerome Powell stressed that Fed officials would like to see more evidence that the inflation rate was headed toward its 2 per cent goal before they could start reducing rates this year.

“Despite the price pressure, the Fed looks relaxed, and investors interpret it as a dovish pivot. And there was probably some short covering as some were expecting,” said Andrew Holland, chief executive officer, Avendus Capital Public Market Alternate Strategies

Metal stocks jumped, and the BSE Metals index rose 2.7 per cent. Public-sector stocks also saw a revival, and the BSE CPSE index rose 3.3 per cent. Information technology stocks, which are rate-sensitive, rose, and the Nifty IT index 0.8 per cent.

Analysts termed the gains in public-sector and metal stocks a bounce-back after the recent correction.

“We recently saw a correction, and one does not know how long this will last. Public-sector stocks, especially railway stocks, have become multi-baggers, and investors will buy whenever there is a correction after a rally,” said Ambareesh Baliga, independent equity analyst.

According to analysts, announcements on corporate earnings from next month and election-related news will determine the market trajectory in the near term.

“Between now and the elections, if global factors are positive, our markets will also rally,” said Holland.

The market breadth was favourable, with 2,749 stocks advancing and 1,076 declining.

“We expect market recovery to sustain over the next few days. Largecaps are better placed in terms of valuation comfort and growth visibility. However, volatility in the broader market cannot be ruled out,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

Barring four, all Sensex stocks declined. HDFC Bank rose 0.9 per cent and was the biggest contributor to Sensex gains, followed by Larsen and Toubro, which rose 1.4 per cent. NTPC, which rose 3.5 per cent, and PowerGrid, which went up 3.4 per cent, were the big contributors to the rise. Foreign portfolio investors were net sellers to the tune of Rs 1,827 crore, and domestic institutional investors (DII) were net buyers worth Rs 3,209 crore.

“We may see some consolidation now and need sustainability above 22,200 to mark any meaningful recovery. Meanwhile, participants should stay stock-specific until we see clarity over the next directional move and stick with the index majors and large midcaps,” said Ajit Mishra, senior vice-president (technical research), Religare Broking.