Dovish US Fed outlook buoys Indian equity markets

| Saturday, December 19, 2015 - 21:13
First Published |
Bombay Stock Exchange

Dovish US Fed outlook buoys Indian markets

Mumbai: Short coverings and value buying at lower levels, coupled with a dovish US Fed's monetary outlook, pushed the Indian equity markets higher during the just concluded weekly trade.

Both the bellwether indices of the Indian equity markets gained nearly two percent each, after two consecutive weeks of losses. Till date in December, keybroad-based key indices have lost close to 4-4.5 percent.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) rose 474.79 points or 1.89 percent to 25,519.22 points from its previous weekly close at 25,044.43 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) gained during the week under review. It ended higher by 151.5 points or 1.99 percent to 7,761.95 points.

"Improved domestic economic numbers i.e. monthly IIP (Index of Industrial Production), WPI (Wholesale Price Index), appreciation of rupee against dollar, short covering and lower level buying helped indices register gains," said director, Hem Securities, Gaurav Jain.

Besides, markets got a major boost as the US Fed's Federal Open Market Committee (FOMC) decision came on the expected lines. The US Fed hiked key interest rates by only 25 basis points.

"An expected rate hike from the FOMC and a dovish tone from the US Fed stating that future rate hikes will depend on global scenario or if the US economic conditions persist helped buoy sentiments," said Hiren Sharma, senior vice president at Anand Rathi Financial Services.

Apart from the rate hike, the FOMC projected an improved US economic outlook, lower unemployment and stable inflation. This was a major positive trigger for the Indian markets, as the US is India's trading partner.

"Investors were also happy that the uncertainty is now behind us and the rate hike acts is also an indication of strength in the US economy," said Vaibhav Agarwal, vice president and research head at Angel Broking.

In addition, a dovish outlook by the US Fed, which said that it will maintain an accommodative stand and that the future rate hikes are likely to be gradual, soothed investors' nerves.

"US Fed's decision provided opportunity to those investors, who had been waiting in sidelines for clarity on further course of action from the US central bank to participate in the markets," said Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services.

"With FOMC signalling that further rate hike would be moderate, this increased the risk appetite of investors, with some even factoring in the chances of more easing action from the Reserve Bank of India (RBI), provided inflation remains under check."

Investors participation in the cash markets segment during the first week of this month was seen upwards of Rs 19,000 crore across exchanges, however, the daily figures slid to sub-Rs 16,000 crore just before the FOMC and rose back again to Rs 20,000 crore post the US Fed's announcements.

After the FOMC meet, the relentless selling by foreign investors in the Indian equity markets too halted for the time being.

The National Securities Depository Limited (NSDL) figures showed that the FPIs were net buyers during the week ended December 18. They bought Rs 544.23 crore or USD 83.32 million in equity and debt markets from December 14-18.

The data with stock exchanges showed that the FPIs bought stocks worth only Rs 19.4 crore in the week ended December 18.

Nevertheless, the FPIs had taken out Rs 23,352 crore during the period August-September. In November alone, the foreign investors off-loaded stocks worth around Rs 9,000 crore.

Not just equities, even the rupee rose on a weekly basis. It strengthened by 49 paise at 66.40 (December 18) to a US dollar from its previous close of 66.89 (66.8850) to a greenback (December 11).

However, the markets closed in the red during the last trading session after Asian cues turned negative led by the Bank of Japan's (BoJ) monetary policy outcome and the U.S. Congress decision to impose a special fee of USD 4,000 on certain categories of H-1B visas and USD 4,500 on L-1 visas.

Other events notably the cut in the official growth forecast to 7-7.5 percent from 8.1-8.5 percent in the government's mid-year economic review, global fall in commodity prices and weakness in crude oil dragged markets lower on last Friday.

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