Rupee at nearly three-week high: Global cues drive stocks rally, indices up 8.5% in July

FPIs have net bought equities of $0.65 billion in July, paring the year-to-date net selloff to $27.9 billion.

The indices are at the highest levels since April 29 and have surged about 8.5% this month amid gains in finance, auto and metal stocks.

Equities advanced for a third straight day on Friday owing to positive global cues and hopes that a weak economy will slow the pace of monetary tightening in the US. The Sensex jumped 712 points, or 1.25%, to end at 57,570, while the Nifty50 settled at 17,158, up 229 points or 1.35%. In the broader market, the BSE midcap and smallcap added over a percentage point each.

The indices are at the highest levels since April 29 and have surged about 8.5% this month amid gains in finance, auto and metal stocks. The Nifty has recovered 13% from its low of 15,183 in June, led by softening in commodity prices, reduced intensity of FIIs selling, healthy monsoon and better-than-expected earnings season, said market watchers.

The rupee strengthened to its highest in nearly three weeks against the dollar on Friday.

FPIs have net bought equities to the tune of $0.65 billion in July, paring the year-to-date net selloff to $27.9 billion. This does not include provisional net purchases of over Rs 1,000 crore on Friday. The risk of further FPI outflows remain, especially if aggressive central bank rate hikes continue and oil prices remain uncomfortably high.

On Wednesday, the US Fed raised interest rates by 75 bps with a guidance in the range of 3% to 3.5%. The hike of 75 bps was already discounted by markets but it’s the guidance which cheered global markets.

Fed Chairman Jerome Powell emphasized the significance of price stability for sustainable economic growth. He indicated the FED is targeting ‘soft landing’ of the economy in order to bring inflation under control. He also stressed that the US is not in a recession and mentioned there have been many instances when growth was negative for a few quarters but a strong job market ensured that the economy sailed through such a patch.

“Interest rate guidance of 3% to 3.5% leaves scope for either one unusually large increase in September policy meeting or a step-by-step increase of the same magnitude, which suggests this upward cycle of interest rate may not last for long,” said Siddarth Bhamre, research head at Religare Broking.

“The Fed, through its commentary, has made markets believe that this interest rate upcycle may not last long contrary to what was estimated before. This may have positive implications on equities globally,” Bhamre said.

Global stocks rose on Friday, on course for their best month since late 2020, on expectations that the Fed would not raise rates to the extent earlier expected.

All sectoral indices ended in the green on Friday, with the NSE Metal index climbing 4.6%, followed by the NSE Basic Materials at 2.3%.

“Technically, after a long time, the market hit the level of 200-day SMA (simple moving average). It also successfully cleared the 17000 resistance mark and closed above the same. In addition, on weekly charts, the index has formed long bullish candle which indicates further uptrend from the current levels,” said Amol Athawale, deputy vice president – technical research, Kotak Securities.

The market will now focus on earnings and upcoming high-frequency data like auto sales, PMI numbers and GST collection figures for cues.

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