Stocks rallied on Thursday to clock their best week in more than a year, after the 25 basis points (bps) rate hike by the US Federal Reserve was largely factored in. This is the first rate hike since 2018, with the Fed holding rates near zero levels since the pandemic started in 2020. While it has signalled for six more hikes, chairman Jerome Powell said that the US economy remained ‘very strong’ and could handle tighter policy. A road map to trim the balance sheet and holdings of treasuries will begin in May.
Taking a cue from other global markets, benchmarks in India, too, have risen by 4.2% in the last one week. Additionally, foreign portfolio investors (FPIs) also turned buyers in Indian equities on Wednesday after a long selling streak. With Thursday’s gains, the benchmarks have fully recovered from the losses that followed Russia’s invasion of Ukraine. Despite the rate hikes and balance sheet that is expected to commence soon, strategists believe India is better placed to combat the external storm. According to ICICI Securities, India is in a better position compared to other emerging markets and has significant foreign exchange reserves. Further, market sentiments improved on hopes of progress in peace talks between Russia and Ukraine along with a decline in crude oil prices.
Speaking to FE, A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC, said, “Even though the Federal Reserve has hiked prices, it won’t impact growth. The economy will be able to absorb more rate hikes. Rate hikes are not being seen as a negative because they are very low. Also, FPIs have come back to India, which is a positive for India as it is being seen as a better alternative to China. We expect FOMC to hike rates twice this year and the market is discounting 160 basis points of rate hike. This time the market is prepared for rate hikes.”
However, markets could remain volatile as the Fed has not begun tapering its balance sheet yet and will start it in May. According to Nitin Master, portfolio manager at Axis Securities, “More than the rate hike trajectory, we believe that more than the rate hike trajectory by the Fed, it is crucial to keep an eye on the proposed reduction in the balance sheet by the Fed, which is expected to start from the next meeting. Despite the recent rally markets will remain volatile in the near future on the back of tightening liquidity conditions globally.”
Foreign portfolio investors (FPIs) bought equities worth $70.91 million on Wednesday, to mark their third such purchase in over a month. On the other hand, domestic investors shopped stocks worth $101.4 million. The volatility index also cooled off to 22.61 level on Thursday, after hitting a high of 31.98 on February 24.
Staging a 1,279 points rally during the intra-day trade on Thursday, the Sensex settled 1,047.28 points higher at 57,863.93. The broader Nifty 50 added 311.70 points to close the session at 17,287.05. Both Sensex and Nifty are now above their 200-day simple moving averages as they clocked their best week since Feb 2021. Moreover, analysts foresee another 2-3% up move in the coming sessions. Market’s fear gauge – India VIX also cooled off to 22.61 level after hitting 31.98 during the outbreak of war.
Markets in the US also tracked the positive central bank commentary. As a result, the S&P 500 ended higher by 2.2%, while the Nasdaq composite gained 3.8%. Shares in China, too, surged following overnight gains in the US markets. China’s Shanghai Composite ended higher by 1.4% on Thursday.
Back home, barring IT, all sectoral indices ended in the green, with auto, financials and realty surging the most. The overall market breadth also supported bulls as 2,099 of the 3,529 stocks traded rose on the BSE, while 1,303 declined.
