Indian equities on Thursday celebrated the somewhat dovish stance of the US Federal Reserve, which signalled on Wednesday it would raise interest rates later slower than previously forecast, with the Sensex soaring 307 points in intra-day trades. However, by close the market had given up all its gains to end 152.45 points lower at 28,469.67, even though foreign and domestic institutional investors were net buyers in the cash segment. The broader Nifty lost 51.25 points or 0.59% to end at 8634.65.
However, bonds rallied and the rupee appreciated following Fed chair Janet Yellen’s indication that while she may not be ‘patient’, it didn’t mean she would be ‘impatient’.
The rupee ended at 62.52 to the dollar, up 0.27% from Wednesday’s close, after hitting a two-week high in early trade. “The expectation of the pace of hikes by the Fed has significantly changed, which has given the market comfort,” Ashish Parthasarthy, head of treasury at HDFC Bank observed. Dealers, however, point out that big gains for the currency are unlikely as the central bank would likely prevent a sharp appreciation by buying dollars regularly.
The 10-year benchmark 8.40%, 2024 bond yield settled at 7.76%, down from 7.79% on Wednesday. “It is a relief rally but even if the Fed hikes rates the impact on the ground in India may not be much since US rates would still be very low compared with those in India,” said Jayesh Mehta, head of treasury at Bank of America-Merrill Lynch.
Investors have been wary about a rise in US interest rates since they believe it could trigger an outflow of funds from bond and stock markets in emerging economies. Indian markets have been correcting over the past few sessions on the view stocks may be overvalued since earnings growth has been subdued.
UR Bhat, MD, Dalton Capital Advisors, told FE he suspected selling or unwinding of trades by traders towards the end of session had pulled down stocks.
“Having said that, institutional investors are not worried about US rate hike. They are more concerned about economic reforms in India and a pick-up in corporate earnings. We do not see Nifty falling below 8,600 unless March quarter earnings are very negative,” Bhatt said.
Most benchmark indices globally had scaled towards all-time highs on Wednesday after the US central bank said it was in no rush to push borrowing costs higher despite removing a reference to being “patient” on interest rates from its policy statement. Foreign investors are understood to have bought $228 million worth of equity in the cash segment on Thursday, while their local counterparts also featured as net buyers to the tune of $8.55 million, data showed.
So far in 2015, foreign institutional investors have bought stocks worth $5.5 billion, the most among eight Asian markets tracked by Bloomberg, and bonds worth $6.3 billion. The Sensex has gained 3.4% this year and trades at 15.9 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 11.9.