Dovish US Fed boosts market sentiment

Nifty at new high, equities see surge in foreign flows

The benchmark Nifty on the National Stock Exchange clocked a new all-time high on Thursday, even as the US Federal Reserve raised its policy rate, the third increase since December 2015.

Domestic stocks and currency climbed, along with other global markets, after the US central bank said its monetary policy stance would remain accommodative for "some time", implying its three-rate hike forecast for 2017 would not be overshot.

The Nifty 50 index, a gauge for the performance of the country's top companies across sectors, rose nearly 0.8 per cent to 9,153.7. The 30-share benchmark Sensex on the BSE exchange rose 0.6 per cent or 187.74 points to 29,585.85, about 1.4 per cent away from a new high. The rupee gained 0.4 per cent to close at 65.41 against the dollar.

"The message from the Fed was less hawkish than anticipated. It has maintained its stance of gradually normalising interest rates, pegging two more rate hikes in 2017. The Fed's stance bodes well for Indian equity markets, where we expect the positive momentum to continue," said Sanjay Kumar, chief investment officer, PNB MetLife Insurance.

Foreign portfolio investor (FPI) flows into the Indian market accelerated with the rupee's weakening. On Thursday, FPIs net bought shares worth Rs 1,360 crore, taking their three-day investment tally to Rs 6,600 crore ($1 billion).

"The Fed's statement made it clear that the path for rate hikes is on expected lines for 2017. Clarity on the path will remove overhang on the equity markets emanating from foreign liquidity flows. The markets will now take a direction based on earnings growth prospects for the next fiscal," said Rakesh Tarway, head of research, Reliance Securities.

Most Asian and European stocks also advanced on the Fed decision. Metal and gold prices climbed, after the dollar index fell to a one-month low. European stocks also got a boost from defeat of a populist party in the Netherlands poll, reducing political uncertainty in the region.

The gains were broad-bases, with the Nifty Midcap index gaining 1.7 per cent to a record high and the Nifty 500 gaining 0.9 per cent. The India VIX index, a gauge for market volatility, dropped 4.1 per cent to a new low of 11.91, signalling a positive undercurrent. There were nearly two advancing shares for every one that declined on the BSE.

Adani Ports and Tata Steel gained a little more than four per cent each and were the biggest Sensex gainers on Thursday. Bajaj Auto and Asian Paints gained about two per cent. Among sectoral indices, the BSE Metal index gained the most at 2.8 per cent, followed by the BSE Power index at 1.8 per cent.

Analysts expect pro-risk sentiment to continue on hope of global economic growth after the Fed highlighted the US economy's robustness. However, concerns remain over market valuations and lack of sustained pick-up in earnings and economic growth.

The Indian markets have risen 11 per cent so far in 2017, among the best performing globally. The rupee has risen 3.85 per cent against the dollar so far this year. The Indian markets now trade at nearly 20 times the one-year forward earnings estimate. The market capitalisation of all domestic listed companies has touched a record Rs 120 lakh crore, nearing nominal gross domestic product (at current prices) of Rs 136 lakh crore for 2015-16.