Stockmarket. Powell effect: Sensex, Nifty at lifetime highs, rally to continue

Amid the perception that stock market valuations were near their peaks, India’s equity index Sensex and Nifty touched a new lifetime high on Monday, thanks to the dovish stance taken by the US Federal Reserve chief in his annual Jackson Hole economic speech. The Sensex rose 765.04 points or 1.36 per cent to close at a record high of 56,889. The Nifty index rose 225 points or 1.35 per cent to close at 16,931. The rupee also appreciated about 40 paise to close at 73.2925 a dollar against the previous close of 73.6950.

The Fed Chair Jerome H Powell on Friday said that he would not rush to hike key interest rates and continue the bond buying programme at the usual pace. “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal on the timing of interest rate lift-off, for which we have articulated a different and substantially more stringent test,” Powell had said.

Markets to remain positive

Rohit Srivastava, chief strategist, Indiacharts, said the Fed comments have created a weak dollar and reflation in the system. “It is positive for rising commodity prices and stock prices. Markets are likely to remain positive and rising for the next one year at least. When people go short on dollars and sell them, they are usually buying assets, which are equities and other commodities,” he said.

A heavy build-up of positions in the derivatives segment for August expiry was preventing the indices from hitting the new peak for the past few weeks and markets regained their momentum post that expiry, analysts told Business Line.

Vinod Nair, Head of Research at Geojit Financial Services, said, “Following a strong gap-up opening, equity benchmark indices maintained the trend throughout the day in line with the strength in global markets. Global markets strengthened as the anxiety over the Jackson Hole symposium subsided following the dovish tone of the Fed Chair. Jerome Powell stated to stick with the wait-and-see approach giving reassurance that the easy money policy will continue this year with a smaller rate of tapering.”

Spurt in rupee

The rupee opened about 23 paise stronger on Monday. Last Friday, rupee had risen about 53 paise to the dollar. Anindya Banerjee, Deputy Vice-President, Currency Derivatives & Interest Rate Derivatives, Kotak Securities, forecast that, over the near term, rupee-dollar can trade with a downward bias within a 73- 73.60 levels on spot.

The dollar is the reserve currency for the world as 90 per cent trading takes place in it. So, when it falls, it simply means that investors are buying assets and hence pushing up its price. In India, the trend has been that IT stocks rise when the dollar rises since their business largely comes from the US and other markets. But when the greenback falls, the share price of commodity-linked businesses rises.

Metals stocks saw a sharp rally in India in the past few months. On Monday, the gains in the market were led by benchmark stocks including Bharti Airtel, Tata Steel, Axis Bank, Titan Company, Maruti Suzuki India and Bajaj Finance. Small and mid-cap indexes that were on a downward spiral for the past few weeks too saw a boost on Monday. BSE Mid-cap index and Small-cap index gained by 1.72 per cent and 1.55 per cent respectively. Broader indices also rallied, outperforming the benchmarks.

Nifty Midcap 50 was up 1.95 per cent and Nifty Smallcap 50 rose 1.39 per cent. The S&P BSE Midcap was up 1.72 per cent while the S&P BSE Smallcap was up 1.55 per cent.

The volatility index fell 0.65 per cent to 13.32.

Binod Modi, Head Strategy at Reliance Securities said, “Strong buying in midc-ap and small-cap stocks continued today as recent correction made risk-reward propositions favourable for investors.”

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