The benchmark Sensex on Thursday surged over 665 points after the US Federal Reserve signalled a dovish policy stance and expectations on measures to boost the farm sector, employment and consumption levels from the interim Budget propelled investors to go on a buying spree.
Led by IT, energy and banking stocks, the 30-share Sensex — clocking its best single day gain in 2019 — rallied 1.87 per cent to close at 36,256.69. The broader Nifty soared 179.15 points, or 1.68 per cent, to 10,830.95 on heavy short-covering on expiry of January series futures and options (F&O) contracts. Investors covered their short positions anticipating the US Federal Reserve on Wednesday signalled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the US economy due to global headwinds and impasse over trade and government budget negotiations. As it held interest rates steady, the US central bank also discarded its promises of “further gradual increases” in interest rates, and said it would be “patient” before making any further moves.
Vinod Nair, head of research, Geojit Financial Services, said, “The market witnessed pre-Budget rally powered by Fed’s dovish stance on rates and short covering on the expiry day. The ease in rate hike trajectory and balance sheet flexibility led to a slide in US 10 year yield, which will favour flow of liquidity to emerging markets. Investors are not expecting any surprise in Friday’s budget. They are expecting some populist measures while government’s stance on fiscal prudence will be keenly watched.”
“US Fed held interest rates and signalled that its three-year-drive to tighten monetary policy may come to an end amid cloudy outlook for the US economy due to global headwinds and impasses over trade and government budget negotiations. Taking cue from these comments, Indian indices which were in the red for four sessions rallied with private banks and technology leading the way. Key things to watch out for would be the interim Budget to be presented tomorrow (Friday) and progress in US-China trade talks,” said Essel Mutual Fund chief information officer, Viral Berawala.
All BSE sectoral indices finished in the green. Axis Bank, Tata Motors, Infosys, Kotak Bank, HDFC Bank, RIL, Bajaj Auto, SBI, HUL, Tata Steel, Vedanta, HFDC, TCS, ITC and Sun Pharma jumped up to 4.64 per cent. However, Yes Bank, HCL Tech, Bajaj Finance, ICICI Bank and Coal India fell up to 2.56 per cent.
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Stock markets have turned optimistic on two factors: US Fed decision to signal the end of a tight monetary policy will boost emerging markets like India as they expect foreign outflows to stop if US interest rates soften. India may witness more inflows if the RBI cuts rates in the coming months. Markets are also expecting some packages to alleviate the agrarian distress and boost employment, investments and the overall growth rate in the interim Budget. But things can go haywire if the government, in its enthusiasm to ride on vote-bank politics, misses the fiscal deficit target. Markets are expected to be volatile and unpredictable in the run-up to the Lok Sabha elections.
“The government should consider withdrawing the long-term capital gains tax. It will help improve the sentiment and make the equity market an attractive option once again. The government should reconsider how the STT is being currently levied and if possible reduce the tax. This will help improve the equity funding and provide relief to the capital markets. The government should increase tax exemption limit from Rs 2.5 lakh to Rs 5 lakh,” said Anand Rathi, chairman of Anand Rathi group.
On the global front, investors were also optimistic about the ongoing two-day high-level talks between the US and China aimed at settling their six-month trade war. Hong Kong’s Hang Seng soared 1.08 per cent, Japan’s Nikkei rallied 1.06 per cent and Shanghai Composite Index rose 0.35 per cent. In the Eurozone, Frankfurt’s DAX gained 0.38 per cent, Paris CAC 40 was up 0.42 per cent and London’s FTSE jumped 0.53 per cent in late morning deals.
Jayant Manglik, president, Religare Broking, said the statement by the US Fed that it would be easy on further tightening boosted the sentiment. “Besides, upbeat earning announcements by the banking majors like Axis Bank and ICICI Bank further fuelled the rally. The sharp rebound on expiry day caught bears completely off-guard,” he said.