The BSE Sensex rallied over 350 points intraday on Thursday after the US Federal Reserve kept interest rates unchanged on the back of tepid economic data. On Wednesday, the Bank of Japan (BoJ) vowed to anchor the 10-year government yield near zero, which will likely fuel further money into US Dollar assets as they chase higher returns. The benchmark yield had turned positive for the first time on over 6 months but slipped back into negative territory post the BoJ decision.
The Bank of Japan shifted the focus of its monetary stimulus on Wednesday from expanding the money supply to controlling interest rates, which some economists deemed as further evidence that BoJ policy had reached the limits of its effectiveness. The changes will help the BoJ manage the impact of its purchases and negative interest rates on Japanese banks, whose profits have been squeezed by a narrowing of short-term and long-term yields. These could largely be seen as moves towards reaching a 2 per cent inflation target.
For the domestic equity markets, such low interest rate regimes could induce further foreign investment inflows in domestic stock markets, as more investment seeks beta outside of their respective bourses, we remain largely bullish on banking and pharma sectors.
This year so far, foreign institutional investors have poured around Rs 45,583.14 crore in the domestic equity markets. Their gross purchases stood at Rs 8,00,031.20 crore while gross sales remained at Rs 7,54,448.06 crore till September 21.
(The author is co-founder and head of trading, Zerodha)