The stock market rose one per cent on Wednesday along with world markets, as the possibility of the first US interest rate rise in almost a decade became imminent.
The US Federal Reserve’s two-day meeting to decide whether to increase interest rates for the first time since 2006 began on Wednesday and the policy announcement will be made late on Thursday night, India time.
The jury is still out on whether improvement in the US labour market will see the Fed increase rates or whether recent volatility in global markets will stay its hand. (CHARTING THE RISE & FALL OF MARKETS)
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Most Asian and European markets rallied about one per cent, while the Chinese market gained nearly five per cent. Yields on bonds from developed markets firmed up.
Trading volumes globally were thin as markets remained in a state of flux. US economic data published on Tuesday did little to either fuel or douse expectations of a rate rise.
Central banks in emerging markets, including India and Indonesia, have asked the Fed to proceed with the hike because they believe uncertainty will hurt the markets more than higher interest rates. The International Monetary Fund and World Bank have warned the Fed not to hike rates, as it could roil financial markets.
“While there could be a knee-jerk selloff across emerging markets, India would likely emerge as relative value, given its higher growth,” said Indranil Sen Gupta, India economist at the Bank of America Merrill Lynch.
After dropping to below a 15-month low of 24,820 on September 7, the Sensex has rebounded about four per cent in the last few sessions.
Foreign institutional investors (FIIs) on Wednesday sold shares worth Rs 337 crore, while domestic investors bought shares worth Rs 423 crore. In the previous two sessions, FIIs had bought shares worth $500 million after pulling out over $2.5 billion since early-August, when China devalued its currency. “Portfolio equity flows have been exceptionally weak over the past month, while bond flows seem to have suffered less. India, though, has been relatively cushioned, given the significant improvement in its fundamentals since the Fed taper tantrum,” said ICICI Bank Global Markets.