India’s two frontline stock indices climbed to all-time highs during the trading session and bond yields retreated to a nearly 31-month low Thursday after the US central bank unexpectedly cut rates by half a percentage point overnight. But broader local gauges and export-laden technology counters fell over concerns the outsized reduction re flects hitherto unknown growth challenges in the world’s biggest economy.
“Since quantum of the cut is bigger than expectations, it implies concerns of a growth slowdown in the US economy, which led to the initial subdued reaction in markets today,” said Pankaj Pandey, head of retail research, ICICI Securities.
Wall Street Rallies
Most analysts had pencilled in a quarter percentage point reduction in the policy rate.
The Nifty advanced 0.15%, or 38.25 points, to close at 25,415.80, while the Sensex gained 0.29%, or 236.57 points, to close at 83,184.8. Nifty Midcap and Smallcap gauges lost between 0.6% and 1.2%, while the technology index retreated 0.3%, having fallen more than 1% intraday. India’s $250-billion technology industry generates more than four-fifths of its revenues in the US. More than two shares declined for every advancing stock.
In the US, there was jubilation on Wall Street with indices up 1.3-2.8% as of press time.
In India, sovereign bond yields closed at two-and-a-half year low, while rupee strengthened to a two-month high, as the Federal Reserve’s first rate cut in four years brightened the likelihood of more fund flows in the future to emerging markets.
Yield on the 10-year benchmark Indian government bond settled at 6.76% on Thursday, 2 basis points lower than 6.78% on Tuesday. Thursday’s level marks the lowest closing for the 10-year benchmark government bond yield since February 25, 2022, LSEG data showed. Bond prices and yields move inversely. The rupee ended at 83.68/$1.
“Government bonds have enjoyed a favourable demand-supply dynamic for some time now because of the Centre’s push for fiscal consolidation and the strong foreign flows that have hit the market because of inclusion in the JP Morgan index. The Fed rate cut now provides an additional push for lower Indian bond yields because lower rates in the US makes EM assets more attractive,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership.
OVERSEAS FUND FLOWS
Besides bonds, which are benefiting from inclusion in a JP Morgan gauge, stocks have also lately found favour with foreign portfolio investors (FPI).
So far in September, FPIs have net purchased $3.7 billion worth of Indian stocks and around $2 billion worth of fully accessible domestic government bonds, depository data showed.
NTPC gained 2.38% on Nifty and was among the top gainers on both indices along with Titan and Nestle India which rose above 1.5% each.
ICICI Securities’ Pandey said the US Fed has forecast further rate cuts of another 150 basis points until FY26, indicating the need to slash rates to underpin a weak economy.
On Wednesday. the US markets had closed lower amid profit booking after the US Fed meeting. The Dow Jones Industrial Average declined 0.25% while Nasdaq Composite Index ended 0.31% lower. The S&P 500 Index fell 0.29%
Elsewhere in Asia, Hong Kong jumped 2%, Taiwan gained 1.68% higher, and South Korea ended 0.21% higher. China rose 0.69% and Indonesia advanced 0.97%.
“Since quantum of the cut is bigger than expectations, it implies concerns of a growth slowdown in the US economy, which led to the initial subdued reaction in markets today,” said Pankaj Pandey, head of retail research, ICICI Securities.
Wall Street Rallies
Most analysts had pencilled in a quarter percentage point reduction in the policy rate.
The Nifty advanced 0.15%, or 38.25 points, to close at 25,415.80, while the Sensex gained 0.29%, or 236.57 points, to close at 83,184.8. Nifty Midcap and Smallcap gauges lost between 0.6% and 1.2%, while the technology index retreated 0.3%, having fallen more than 1% intraday. India’s $250-billion technology industry generates more than four-fifths of its revenues in the US. More than two shares declined for every advancing stock.
In the US, there was jubilation on Wall Street with indices up 1.3-2.8% as of press time.
In India, sovereign bond yields closed at two-and-a-half year low, while rupee strengthened to a two-month high, as the Federal Reserve’s first rate cut in four years brightened the likelihood of more fund flows in the future to emerging markets.
Yield on the 10-year benchmark Indian government bond settled at 6.76% on Thursday, 2 basis points lower than 6.78% on Tuesday. Thursday’s level marks the lowest closing for the 10-year benchmark government bond yield since February 25, 2022, LSEG data showed. Bond prices and yields move inversely. The rupee ended at 83.68/$1.
“Government bonds have enjoyed a favourable demand-supply dynamic for some time now because of the Centre’s push for fiscal consolidation and the strong foreign flows that have hit the market because of inclusion in the JP Morgan index. The Fed rate cut now provides an additional push for lower Indian bond yields because lower rates in the US makes EM assets more attractive,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership.
OVERSEAS FUND FLOWS
Besides bonds, which are benefiting from inclusion in a JP Morgan gauge, stocks have also lately found favour with foreign portfolio investors (FPI).
So far in September, FPIs have net purchased $3.7 billion worth of Indian stocks and around $2 billion worth of fully accessible domestic government bonds, depository data showed.
NTPC gained 2.38% on Nifty and was among the top gainers on both indices along with Titan and Nestle India which rose above 1.5% each.
ICICI Securities’ Pandey said the US Fed has forecast further rate cuts of another 150 basis points until FY26, indicating the need to slash rates to underpin a weak economy.
On Wednesday. the US markets had closed lower amid profit booking after the US Fed meeting. The Dow Jones Industrial Average declined 0.25% while Nasdaq Composite Index ended 0.31% lower. The S&P 500 Index fell 0.29%
Elsewhere in Asia, Hong Kong jumped 2%, Taiwan gained 1.68% higher, and South Korea ended 0.21% higher. China rose 0.69% and Indonesia advanced 0.97%.
