Fed’s decision to stand pat assuages concern of immediate fund outflow; equities gain as investors turn their focus towards the RBI for a rate cut
MUMBAI : The rupee ended at a four-week high against the US dollar due to persistent dollar sales by banks across-the-board, noting a sharp fall in the dollar index post the outcome of the two-day US Federal Open Market Committee meeting.
The Fed had maintained a status quo on interest rates at the meeting, which concluded on Thursday. The rupee surged by 79 paise — its biggest single day gain so far this year — to settle at one-month high of 65.67.
Economists and analysts termed the sharp appreciation in the rupee as a “temporary relief rally”, and most said they see the rupee in the broad range of 65.2500-66.0000 rupees per dollar till Sep 29, when the Reserve Bank of India will release its fourth bi-monthly monetary policy review.
Domestic equities ended off highs as traders booked profits in the backdrop of weak European markets, which interpreted the US Federal Reserve’s comments as an indication of weak global economic growth, dealers said.
The National Stock Exchange’s Nifty and S&P BSE Sensex both ended up 1% at 7981.90 points and 26218.91 points, respectively. Intraday, the indices had risen 2% each.
Equities gained as investors turned their focus towards the Reserve Bank of India, with the clamour for a rate cut by India’s central bank rising. The Reserve Bank of India will meet Sep 29 for a mid-term monetary policy review.
“This short window of opportunity strengthens our call for a 25 bps rate cut by the RBI in the upcoming policy, amid comfortable domestic inflation dynamics,” Kotak Institutional Equities said in a report.
A strong rupee raised hope that foreign portfolio fund flow may make a comeback. FIIs net sold equities worth $2.6 bln in August, and $420 mln in September so far.
The Bank Nifty ended up 2.6% at 17409.15 points, with all its constituents ending up 1.2-4.7%. Other rate-sensitive sectors also gained on account of expectations of a rate cut by the RBI.
The Fed, which has been on the verge of raising interest rates, maintained status quo citing concern of a slowdown in the global economy, financial market volatility, and sluggish pace of inflation in the US.
Indeed, the Fed’s concerns may be justified, as the rout in China’s equities has sent global markets in a tailspin since August. On outlook for equities, foreign fund flows to Indian equities could remain restrained in the short-term, as the US Federal Reserve’s decision underscores the prevailing global uncertainty, which could consequently keep share prices volatile.
Analysts added that weak July-Sep earnings and elections due in Bihar in October will also keep equities edgy. -Cogencis