Stock indices hit record, rupee at 16-month high after US Fed sticks to stance on gradual rate hike
MUMBAI: India’s stock indices surged to yet another record and the rupee hit a fresh 16-month high on Thursday after the US Federal Reserve stuck to its stance on gradual interest rate tightening at the end of a two-day monetary policy meeting. Renewed strength in foreign investor buying after Bharatiya Janata Party’s sterling show in the Uttar Pradesh elections bolstered sentiment as India’s Volatility Index — a widely watched fear gauge — fell to a 30-month low, an indicator of heightened trader optimism.
Amid the record-setting spree, the market capitalisation of BSElisted firms spiked to a lifetime high of Rs 120 lakh crore. The Sensex gained 0.6% to 29,585.85 points.
The Nifty rose 0.8%, climbing over the 9,150-mark to 9,153.70 — a new high. The BSE Metal index led gains, posting a rise of 2.9% — the biggest single-day gain in nearly two months. Other Asian markets gained between 0.1% and 2%.
“The Fed did not change what it had already articulated — that there would be three hikes this year. Going into the Fed meeting, given the rise in inflation, there was concern that the Fed would hint at a faster pace of rate hikes,” said Abhay Laijawala, head of research, Deutsche Bank.
The India VIX volatility gauge fell 4% to 11.91, its lowest closing since September 2014 and just 34 basis points away from its record low of 11.57, also set in that month. A basis point is 0.01percentage point.
The rupee gained 28 paise to close at 65.41 per dollar, the highest since October 30, 2015. In the past five trading sessions, the rupee has strengthened nearly 2% against the greenback.
“Currency market is going to be driven by fund flows for now with expected regulatory speed breakers curbing any wild swings,” said Jayesh Mehta, country treasurer, Bank of America. The Reserve Bank of India has been intervening through state-run bankers to rein in volatility, according to dealers.
Late Wednesday, the US central bank hiked rates by 25 basis points for the second time in three months and said that further increases would only be gradual. This emboldened investors further, following last week’s booster of the BJP’s strong showing in state elections, particularly the politically crucial UP.
CORRECTION ON THE HORIZON?
This was reflected in renewed buying interest from foreign investors who have acquired shares worth Rs 7,087 crore in three sessions this week, with Monday having been shut for Holi. On Wednesday, foreigners bought shares worth Rs 1,360 crore.
So far in March, they have pumpedRs 16,000 crore into the market. Domestic institutional investors have sold shares worth about Rs 1,600 crore this week.
“The stronger rupee is attracting foreign investors to the market, which is giving comfort to other investors. When there is so much liquidity chasing stocks, a correction is bound to happen though one can’t predict when that will happen,” said Sanjiv Bhasin, executive vice-president, market and corporate affairs, IIFL.
Market watchers said valuations have become a hindrance for further market upsides.
“The Sensex is now trading at 17 times one-year forward earnings – approaching levels which have been difficult to breach, without corresponding support from earnings,” said Laijawala. Rajesh Baheti, MD at Crosseas Capital, said that markets are richly valued but these levels could persist for a while as alternative assets are not doing very well.
Amid the record-setting spree, the market capitalisation of BSElisted firms spiked to a lifetime high of Rs 120 lakh crore. The Sensex gained 0.6% to 29,585.85 points.
The Nifty rose 0.8%, climbing over the 9,150-mark to 9,153.70 — a new high. The BSE Metal index led gains, posting a rise of 2.9% — the biggest single-day gain in nearly two months. Other Asian markets gained between 0.1% and 2%.
“The Fed did not change what it had already articulated — that there would be three hikes this year. Going into the Fed meeting, given the rise in inflation, there was concern that the Fed would hint at a faster pace of rate hikes,” said Abhay Laijawala, head of research, Deutsche Bank.
The India VIX volatility gauge fell 4% to 11.91, its lowest closing since September 2014 and just 34 basis points away from its record low of 11.57, also set in that month. A basis point is 0.01percentage point.
The rupee gained 28 paise to close at 65.41 per dollar, the highest since October 30, 2015. In the past five trading sessions, the rupee has strengthened nearly 2% against the greenback.
“Currency market is going to be driven by fund flows for now with expected regulatory speed breakers curbing any wild swings,” said Jayesh Mehta, country treasurer, Bank of America. The Reserve Bank of India has been intervening through state-run bankers to rein in volatility, according to dealers.
Late Wednesday, the US central bank hiked rates by 25 basis points for the second time in three months and said that further increases would only be gradual. This emboldened investors further, following last week’s booster of the BJP’s strong showing in state elections, particularly the politically crucial UP.
CORRECTION ON THE HORIZON?
This was reflected in renewed buying interest from foreign investors who have acquired shares worth Rs 7,087 crore in three sessions this week, with Monday having been shut for Holi. On Wednesday, foreigners bought shares worth Rs 1,360 crore.
So far in March, they have pumpedRs 16,000 crore into the market. Domestic institutional investors have sold shares worth about Rs 1,600 crore this week.
“The stronger rupee is attracting foreign investors to the market, which is giving comfort to other investors. When there is so much liquidity chasing stocks, a correction is bound to happen though one can’t predict when that will happen,” said Sanjiv Bhasin, executive vice-president, market and corporate affairs, IIFL.
Market watchers said valuations have become a hindrance for further market upsides.
“The Sensex is now trading at 17 times one-year forward earnings – approaching levels which have been difficult to breach, without corresponding support from earnings,” said Laijawala. Rajesh Baheti, MD at Crosseas Capital, said that markets are richly valued but these levels could persist for a while as alternative assets are not doing very well.
