After a muted reaction to Federal Reserve’s 50 basis point rate cut, bulls made a strong comeback on Friday spurred by optimism that the US economy is likely to see a soft landing. In addition, inflows from FTSE semi-annual review adjustment and Bank of Japan holding key rates unchanged fuelled the gains.
The BSE Sensex rose 1,359.51 points or 1.6% to close at 84,544.31 points. This is the first time the 30-stock index surpassed 84,000 points. It took only six days for the index to jump from 83,000 to 84,000 points.
The Nifty also rose 1.5% or 375.15 points to close at 25,790.95 points, inching closer to 26,000 points mark. With gains across sectors, investor wealth jumped by Rs 6.24 trillion to a record Rs 471.71 trillion.
Sriram Velayudhan, senior vice president – alternative research at IIFL Institutional Equities said semi-annual review of FTSE indices contributed to the market rally as inflows were expected in frontline private banks.
With $1 billion (approximately Rs 8,358 crore) inflows on account of the FTSE review adjustments, foreign portfolio investors (FPIs) infused a total of Rs 14,064 crore on Friday, according to provisional data. On the other hand, domestic institutional investors sold shares worth 4,427 crore.
Benchmark indices had recorded marginal gains on Thursday and US equities had fallen on Wednesday in their initial reaction to a 50-basis-points rate cut by the Fed. However, both the markets saw sharp bounce back a day later.
Concerns that Fed may have cut by a higher quantum due to the expectations of a potential slowdown in the US economy had led to caution among market participants.
“Initially, the reaction followed a typical ‘buy the rumour, sell the news’ pattern, but within a day, the market resumed its upward trend, hitting an all-time high,” said Krishna Appala, senior research analyst at Capitalmind Research.
The sharp gains on Friday helped benchmark indices record around 2% gains for the week. This is the second consecutive week of gains for the benchmarks.
While benchmarks posted gains for the week, the broader market indices ended a tad lower. The BSE Smallcap index fell 0.1% for the week, and the BSE Midcap ended 0.2% lower.
Market participants cautioned investors about expensive valuations in the broader market. Despite this week’s decline, the two indices are up nearly 34% so far in 2024.
“Currently, ample liquidity is driving indices higher, and we see no immediate catalyst that could significantly reduce this liquidity,” said Sunil Damania, chief investment officer at MojoPMS. “While we maintain a constructive outlook on the market, we anticipate that the rally from this point forward may be more selective, with sector rotation likely—sectors that outperformed previously may not lead the next leg of the rally.”
(Data contribution by Kishor Kadam)