Domestic stock markets posted tepid gains on Thursday, even as the U.S. Federal Reserve’s decision to aggressively cut rates by 50 basis points boosted global equity markets.
While benchmark indices rose nearly 1 percent in early trading to hit fresh record highs, valuation concerns and a sharp sell-off in broader markets led to profit-taking.
The 30-share BSE Sensex index closed 0.3 per cent higher at 83,185 points. The Nifty 50 rose 0.15 per cent to 25,416 points. The Sensex closed 0.7 per cent lower from the intra-day high of 83,774 points, and the Nifty 50 fell nearly 0.8 per cent from a high of 25,612 points.
By comparison, major markets in Asia and Europe posted gains of more than 1 percent.
The impact of the US rate cut was most visible in the currency and debt markets. While the rupee appreciated by 8 paisa to settle at Rs 83.66 against the dollar, the benchmark 10-year government bond yield fell to 6.76%, the lowest level since February 25, 2022. Gold prices, which have an inverse correlation with interest rates, also approached new highs.
According to experts, the Indian stock market’s subdued reaction to the US Federal Reserve’s rate cut was due to elevated equity valuations. Moreover, Federal Reserve Chairman Jerome Powell stressed that the decision to start with a 50 basis point cut is not an indication of a faster pace for future cuts and that future cuts will be data-dependent.
Government officials downplayed the impact of the Federal Reserve’s easing cycle on India.
The impact of the US Federal Reserve rate cut could be muted in India as much of it had already been priced in, Chief Economic Adviser V. Anantha Nageswaran said. Meanwhile, Economic Affairs Secretary Ajay Seth said the Fed rate cut would not have a significant impact on foreign capital inflows into India.
“It is positive for the global economy, including the Indian economy. It is a 50 basis point cut from a high level. I don’t think it will have a significant impact on capital inflows. We have to see where the interest rate levels in the US are from. We have to see how the markets in other economies behave,” Seth said.
Foreign portfolio investors (FPIs) were net sellers as they withdrew Rs 2,550 crore, according to provisional exchange data. Domestic institutional investors (DIIs) bought shares worth Rs 2,013 crore.
Most IT stocks, which had seen a sharp fall on Wednesday, extended their losses with the Nifty IT index falling 0.34 per cent, weighed down by a 0.9 per cent drop in TCS. HCL Tech, Tech Mahindra, Wipro and Mphasis also closed lower.
Broader market indices registered a decline with the Nifty Midcap 100 index closing 0.67 per cent lower and the Nifty Smallcap 100 index falling 1.26 per cent. The indices fell over 2 per cent in intraday trade but recouped some losses as buying emerged at lower levels. The decline was led by telecom sector companies. Vodafone Idea fell nearly 20 per cent while stocks such as Indus Towers, GTL Infrastructure and Mahanagar Telephone Nigam fell over 3.5 per cent. Market breadth was weak with only 1,246 stocks advancing on the BSE while 2,734 ended with losses.
The broader market rout wiped Rs 2.3 trillion off the market capitalisation (m-cap) of BSE-listed companies. The m-cap stood at Rs 465.5 trillion on Thursday, compared with Rs 467.7 trillion on Wednesday.
“Powell’s dot plot, economic projections and press conference were all relatively hawkish, implying that the decision to cut 50 basis points today was a one-time move,” David Seif, chief developed markets economist at Nomura, wrote in a note. The brokerage expects 25 basis point cuts in November and December.
In an earlier note, Nomura had said that “laggard” Asian markets could gain more from the Fed cuts.
First published: September 19, 2024 | 19:23 IS
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