The US Federal Reserve?s decision to cut the key interest rate by 75bps from 3% to 2.25% cheered the markets across the globe on Wednesday. Indian markets too surged in the intra-day trades mainly on short covering, but the gains were shaved-off and the markets ended the day with modest gains. The 30-share Sensex of the Bombay stock Exchange (BSE) after gaining more than 630 points during the day, closed slightly below the 15K mark at 14,994.83 points, posting a gain of 161.47 points or 1.09%. The broader S&P CNX Nifty of the National Stock Exchange (NSE) closed at 4,573.95 points gaining 40.95 points or 0.90%.
More than 100 basis point cut in the key lending rate by the US federal Bank in a week?s time coupled with some better than expected results for some of the investments banks led the US markets surge on Tuesday. The Dow Jones industrial average (DJIA) gained 420 points or 3.51% to close at 12,392.66 points while the Nasdaq Composite rose by 91.25 points or 4.19% to close at 2,268 points. Other Asian markets also took a cue from this development in the US as the Hong Kong?s Hang Seng added 482.33 points or 2.26% to close at 21,866.94 points. The Shanghai Composite of China surged 92.71 points or 2.53% to end at 3,761.60 points.
Apurva Shah, head of research, Prabhudas Lilladhaer Securities said, ?We have been seeing this trend for quite some time now and even today, after surging in the early trades, we pared all early gains. Though the US Fed rate cut gave some fillip to the markets, I think it is only a temporary measure. Markets were surging when the US was increasing the interest rate and the same thing happens when they are slashing it. As far as the Indian markets are concerned, the impact of rate cut will remain for few days and unless the liquidity conditions improves drastically, we will continue witnessing volatile markets.?
Post the emergence of the sub-prime crisis in September 2007 the US Federal reserve have started cutting rates intermittently to protect the US economy to slip into recession. Tuesday?s Fed rate cut was the sixth since September.
According to the provisional figures from the stock exchanges (SEs), even foreign institutional investors were marginal net buyer of Indian equities at Rs 30.54 crore while the domestic institutional investors were net buyers at Rs142.19 crore on Wednesday.