The Sensex on Thursday closed at a two-year high and the Nifty hit a new peak shrugging off the quarter of a percentage point hike in interest rate by the US Federal Reserve.

Likewise, the rupee closed at a 17-month high of 65.41 against the dollar, making it the third-best performing currency in Asia this year after the South Korean won and the Taiwanese dollar

Jayant Manglik, President, Retail Distribution, Religare Securities, said in a note: “Market sentiment was upbeat, mainly in response to the US Fed’s policy stance, which fell in line with market expectation. Traders also took encouragement from the latest export figures, which showed double-digit growth in February compared to the same month last year. This clearly shows markets are in no mood to slow down.”

The benchmark Sensex rose 0.64 per cent to close at 29,585.85, while the Nifty closed at 9,153.7. Hefty buying by foreign institutional investors was seen across the board.

Late on Wednesday night, the US Federal Reserve increased its benchmark interest rate by 25 basis points, the second such in three months but only the third in a decade. The move was widely expected by stock markets across the globe, and there was no volatility.

“Indian markets are well placed to absorb the US Fed rate hike. Gradual approach in future increases augurs well for emerging markets,” Economic Affairs Secretary Shaktikanta Das said. The view was also supported by Chief Economic Advisor Arvind Subramanian, who said it was anticipated.

On the BSE, midcap and smallcap indices rose 1.55 per cent and 1.07 per cent each. On the NSE, the Bank Nifty rose 0.43 per cent. Auto, IT, metals and real estate stocks were the biggest sectoral gainers. Volatility was limited, with the India Vix reading 11.9100, down 4.12 per cent. But the US Fed’s less hawkish stance on further rate hikes may not prompt the Indian central bank to respond, say analysts.

David Rasquinha, Managing Director (Additional Charge), Export-Import Bank of India, said: “What is the impact for India if the Fed hikes its rate? You would expect the dollar to strengthen and the rupee to weaken to that extent. What you are seeing actually is a very strong rupee post the UP elections.

“The rupee has, in fact, strengthened significantly. So, there is really no immediate worry for us that the Fed rate hike is going to weaken the rupee. The opposite has happened. So, I don’t see the Reserve Bank reacting on this point just yet.”