Fed rate cut raises hopes of similar move by the Reserve Bank of India

The 30-share Sensex of the BSE on Wednesday joined the global party, following the 50-basis point rate cut by the US Federal Reserve, by surging past the 16,000-level in early morning trades. The benchmark index rose a heady 653.63 points, or 4.17%, to close the day at 16,322.75 points. It touched an intra-day high of 16,335.30 points.

This is the largest ever single-day gain for the Sensex. But it wasn?t the only one in a celebratory mood. On Tuesday, the Dow Jones Industrial Average gained 335.97 points, or 2.51%, to close at 13,739.39 points–its biggest one-day jump in the past five years?thanks to the shot in the arm from the Fed and profits by Lehman Brothers, which had a major exposure in the subprime market.

Closer home, the broader S&P CNX Nifty of the NSE ended the day at 4,732.35 points, gaining 186.15 points, or 4.09%. The combined turnover of the BSE and NSE, including the derivative segment, stood at Rs 1,85,829.76 crore.

Barring the Shanghai Composite, Asian equity markets rose in line with global sentiments in the range of 0.30-4%. The Sensex was clearly the biggest gainer in the region, taking many by surprise. ?The surge in domestic equity indices is stunning and beyond expectations,? said Ramdeo Agarwal, MD, Motilal Oswal Securities.

The US rate cut also built expectations of a possible interest rate cut by RBI. ?The reduction in the benchmark Fed Rate is a big relief to emerging markets, especially India on two counts. One, the RBI may follow suit with inflation softening to around 3.5%; second is the movement of more money to emerging markets,? said Harjit Singh Sethi, CEO, Almondz Securities. The resurgent Sensex saw another milestone being set by Reliance Industries Ltd, whose share price rose Rs 114.50, or 5.56%, to close at 2,172.90. The company can now boast of a Rs 3-lakh-crore-plus market capitalisation.

The only dampeners to the festivities: international crude prices rose further to touch a new high of $82.32 per barrel while the rupee appreciated to a nine-year high of Rs 40.20 against the dollar. This, analyst feel, could have an impact on inflation as an oil price hike seems imminent and a rising rupee could impact exports.