Index touches an all-time high of 40,312.07 before closing at 40,129.05
Foreign institutional investors bought Indian shares worth $1.78 billion in October
Indian stock markets touched new peaks on Thursday after the US Federal Reserve reduced interest rates by a quarter percentage point at its two-day meeting. After hitting an all-time high of 40,312.07 points during the day, the BSE Sensex index retreated to close at 40,129.05, up 77.18 points or 0.19%. However, the broader Nifty index is far from setting a new record. The 50-share index closed at 11,877.45, up 33.35 points or 0.28%. The Nifty’s record intra-day high and closing highs were 12103.05 and 12088.55 respectively, recorded on 3 June.
The Sensex has gained 3.78% in October, its best monthly performance this financial year. The Nifty gained 3.51% during the period, after gaining 4.09% in September.
“We are in a bull market. The economy is coming back on track and we are clearly overdone on consumption pessimism. The cut in tax rate is also boosting market sentiment," said Sanjiv Bhasin, director, IIFL Securities.
According to ICICI Securities analysts, aggregate net profit growth for the 387 companies that have declared results so far is 17%, led by financials (ex-financials, net profit growth is 15%), and largely helped by the tax cuts. Corporate wages improved by 13% and capital consumption grew 17% boosted by lease accounting.
The US Fed cut interest rates by 25 basis points and signalled a pause in further cuts unless the economic outlook changes materially. The Federal Open Market Committee (FOMC) altered the language in its statement following the two-day meeting on Wednesday, dropping its pledge to “act as appropriate to sustain the expansion", while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate".
As in the September statement, the FOMC cited the implications of global developments in deciding to lower the target range for the central bank’s benchmark rate to 1.5% to 1.75%. US Federal Reserve chairman Jerome Powell also noted that the risks associated with trade tensions and Brexit showed signs of improving.
According to S. Hariharan, head of sales trading at Emkay Global Financial Services, the statement of confidence by the US Federal Reserve is expected to boost demand for risk assets, including emerging equities. “The changed language in FOMC’s statement yesterday points to a pause in the mid-cycle rate adjustment process, acknowledging continuing strength in the US economy, and waning fears of a recession precipitated by an escalation in the trade war. Hence, we continue to believe that the external flow environment would remain supportive as the Indian economy emerges from a cyclical trough in demand. Thus, fiscal expansion, monetary accommodation, and supportive capital flows should result in a strong environment for the broader market as well."
Typically, lower interest rates in the US lead to an inflow of foreign funds into emerging markets, considered as risky assets. Foreign institutional investors (FIIs) have bought Indian shares worth $1.78 billion in October higher than last month, which was at $954.62 million. In this year so far, FIIs have bought Indian shares worth $9.94 billion. Domestic institutional investors (DIIs) investment in October was ₹5,380.49 crore.