Sensex dizzy with Fed feelgood

Shares across the board participated in the rally triggered after the US Federal Reserve announced a higher-than-expected 50 basis points-cut in the Fed funds rate to 4.75 per cent from 5.25 per cent on Tuesday, easing concerns about the housing slump and the credit market turmoil driving the world8217;s largest economy into recession.

Prior to this, the US Fed had hiked rates for 17 consecutive times in the span of four years.

A buying euphoria was witnessed across the world markets. Tracking overnight gains on Wall Street, Hong Kong8217;s Hang Seng up 3.98 per cent, Japan8217;s Nikkei up 3.67 per cent, Singapore8217;s Straits Times up 3.65 per cent and South Korea8217;s Seoul Composite up 3.48 per cent surged. Dow Jones industrial average soared 2.51 per cent on Tuesday. This was its biggest surge since April 2, 2003.

The Sensex surged with high turnover: it opened with a bang and kept on advancing during the course of the trading session as buying continued for index pivotals. Short covering also propelled the market higher to some extent. 8220;The Fed cut along with control over inflation and an improved political situation has helped boost the market enthusiasm. A look at some of the advance tax figures also suggest that quarterly numbers of corporates are likely to be healthy.

The feelgood factor of the Fed verdict will continue for some more time with increasing inflows in India where there are some very good investment opportunities,8221; said Amar Ambani, Vice President, Research, India Infoline Ltd.

The fall in US interest rates could mean higher FII inflows. FIIs have already invested 1.18 billion in September, adding to the total inflows of 9.5 billion for 2007. 8220;When rates fall in the US, investors go out and invest in places like India and other emerging markets where returns and interest rates are still high. India can expect higher FII allocations after the US Fed move,8221; said BSE dealer Pawan Dharnidharka.

Experts are optimistic about the latest turn of events. 8220;Directionally, there is nothing much to worry as far as the way forward is concerned, and the markets shall continue their northward journey. However, intermittent blips cannot be ruled out,8221; said Kunj Bansal, CIO, Religare.

What are the blips? Crude oil climbed above 82 a barrel on Wednesday. India which has been fighting inflation has not increased the fuel prices in line with the rise in global rise. Second, the sustained rise in the rupee against the dollar could pose problems for exporters and infotech companies. The rupee had shot up by 28 paise to close at 40.20 against the dollar on Wednesday.

Third, with the US announcing a 0.5 per cent cut in the rate, the debate over an impending slowdown in the US has only increased. Moreover, the exact magnitude of the sub-prime crisis is yet to play out.

Fourth, political uncertainties surrounding the nuclear deal and chances of an early elections could also bring in uncertainties in the market.

Lurking in the wings

8226; Crude oil crosses 82 a barrel: pressure on Govt to hike fuel prices

8226; Rupee at 9-year high of 40.20 to dollar: problems for exporters 038; IT firms

8226; Despite Fed rate cut, strong chances of US slowdown remain

8226; Sub-prime crisis still playing out

8226; Political uncertainty on n-deal and chances of early polls

8226; RBI unlikely to emulate Fed on benchmark rates