Lending markets

Sensex, Nifty rebound strongly; Indian markets will continue to outperform the world, analysts say

Hyper pessimism in equity markets finally gave way to a rally after the US Federal Reserve announced a lower-than-expected hike in lending rates of 0.75 basis points. Positive comments from Fed Chairman Jerome Powel on the US economy and job growth also boosted investors.

On Thursday, the Sensex and Nifty posted their best single-day gains in nearly five weeks, largely on the back of short hedging on bearish bets. The rupiah recorded its strongest day in more than two months on strong dollar inflows from exporters and foreign portfolio investors.

The Sensex and Nifty have gained nearly 10% from the lows the two indices hit in June. On Thursday, the Sensex rose 1,041 points, or 1.87%, to close at 56,857. The Nifty index gained 287 points, or 1.73%, to close at 16,929. The rupee also gained 14 paise to close at 79.77 against the US dollar.

Stock market trading volumes have been weak for the past few days in anticipation of an aggressive interest rate hike by the US Fed. The central bank raised interest rates by 0.75 basis points for the second time in two months, but U.S. stock markets took their cue from comments from Fed Chairman Jerom Powell. He said the U.S. economy and job growth were strong and the Fed would be more dovish in its stance to see it could tackle the recession if and when there were signs. The Fed’s 0.75 basis point hike was expected and priced in by the markets, so there wasn’t much negative reaction, analysts said. Furthermore, the fact that huge short positions were still awaiting unwinding in US equity markets, according to the data, is a sufficient signal that the markets will not collapse soon.

Indian markets will outperform

A surge in global inflation following the Russian-Ukrainian war led world central banks to raise interest rates and reduce quantitative easing to halt a rise in world prices for crude, metals and minerals. foodstuffs. But in a domino effect, this policy tightening has also sucked liquidity from stock markets and reduced the lending power of banks, causing consumer demand to slow. But analysts believe Indian markets will continue to outperform the world in the coming months.

“A mild recession in the US and the rest of the world could actually be good for India, which benefits from lower commodity and other costs as well as the availability of the US dollar. have already started pricing in the likelihood of an interest rate cut by the Fed as fears of a hard landing take hold.India has already benefited from falling commodity prices of late In the coming months, it will also benefit from the lower cost and availability of USD-denominated capital More importantly, India’s higher growth differential versus the rest of the world in a starved world growth will act as a magnet and attract capital flows,” said Sachchidanand Shukla, chief economist at Mahindra Group.

Commodity prices, including crude and metals, have fallen nearly 30-35% over the past five to six weeks.

Currency movements

The Indian Rupee (INR) finished 14 paise at 79.76 from the previous close of 79.9025. Market participants said the dollar had weakened. In addition, the contraction of the US economy for the second consecutive quarter could see the US Fed reduce the quantum of rate hikes in the future, which could be positive for the rupee. Although there was no RBI action in the over-the-counter market, it is believed to have sold dollars in the futures market. The Rupee closed at 74.63/64 in secondary market trading hours.

With contributions by K Ram Kumar

Published on

July 28, 2022