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Our Bureau

Mumbai Sept 19 The benchmark Bombay Sensitive Index breached the psychological milestone of 16,000 on Wednesday, as the global impact of the US Fed rate cut took the Indian markets too, in its sweep.

The bull charge was not just led, but played out solely by the FIIs as domestic institutional investors and retail players were both net sellers for the day.

The magnitude of the US Federal Reserve’s reduction of its benchmark lending rate was not expected, said market participants.

Though once that was known, many did expect the markets to touch new highs.

“A 50 basis point cut in the US Fed rate was not expected, and that is why all the markets have rallied so hard today,” said Mr Andrew Holland, Executive Vice-President and Head - Strategic risk group, DSP Merrill Lynch.

“It looked like hedge funds who were heavily short on the market were cutting their positions, and there was a strong presence of larger FIIs who were buying,” said Mr Raamdeo Agrawal, who heads Motilal Oswal Financial Services.

“The buying decisions today were more or less based on the news of the Fed rate cut, rather than on price-to-earnings ratio,” said Mr Kalpesh Parekh from the Dealing Desk at Emkay Securities.

Another leading broker said the rise was largely due to the psychological impact of the Fed rate cut and called it a “relief rally.”

The Fed rate cut would mean higher liquidity that would, in turn, bring in more funds into emerging markets such as India.

It has also further assuaged fears about the US subprime loan crisis and given rise to a hope that India may follow with interest rate cuts or at least maintain rates.

“The market is also perhaps hoping that the Reserve Bank of India Governor will take the cue from the US Fed and also cut rates. But we don’t know whether this will happen,” said Mr Agrawal of Motilal Oswal.

“If you notice, the interest-sensitive, sectors such as real estate, banking and auto moved up big time as though an interest rate cut were imminent in India,” he added.

“Interest rate cuts also present arbitrage opportunities for international investor, and there will be more money coming in,” he said.

The Sensex which has been on a gradual grind upwards ever since the US sub–prime crisis appeared to wane, also made its highest single-day gain in absolute terms, rising by 653.63 points, to close at 16,322.75 on Wednesday.

Its earlier highest single-day gain had been on June 15 last year, when it rose by 615.62 points. And its earlier high had been on July 24 this year, at 15,794.92 points.

The broader S&P CNX Nifty rose by 4.1 per cent, to close at 4,732.35 gaining 186.15 points.

Among the indices, the BSE Realty index rose by 5.77 per cent, the BSE Bankex by 4.84 per cent, the Oil & Gas index by five per cent and BSE Teck by 3.42 per cent.

All the Sensex stocks gained. The highest gainers were HDFC (7.94 per cent), HDFC Bank (7.83 per cent), Bharti Airtel (6.46 per cent). ONGC rose by 5.95 per cent.

Reliance the largest heavyweight, gained 4.96 per cent and ICICI Bank 4.9 per cent. State Bank of India gained by 4.52 per cent and Infosys by 2.96 per cent.

Nifty futures gained 4.3 per cent, at 4745.95 for Septmeber.

Opinion was rather divided on whether the rally was sustainable at current PE levels (22.04 for the Sensex stocks on Wednesday against 21.16 on Tuesday).

I think it is definitely sustainable, said Mr Agrawal. Corporate performance in the first quarter was good in the next quarter likely to be on the same lines.

“It will probably go higher,” said Mr Holland.

“The buying rate decision was more or less based on news of the Fed rate cut rather than PE ratios,” said Mr Parekh of Emkay Securities.

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