Dovish US rate outlook takes Sensex to 2-yr high; Re strongest in 16 months

NIFTY SCALES NEW PEAK

JOINING A global rally, India's benchmark Sensex on Thursday closed at a 2-year high of 29,585.85 and the National Stock Exchange Nifty hit a new peak of 9,153.70, after the US Federal Reserve hiked interest rates but signalled no pick-up in the pace of tightening.

The rupee also continued its rally for the fourth straight session by rising 28 paise to a fresh 16-month high of 65.41 a dollar on frantic selling of the US currency by exporters and banks amid dovish outlook by Fed on future rate hikes.

The 30-share BSE index settled higher by 187.74 points, or 0.64 per cent, at 29,585.85. This is the highest closing since January 29, 2015, when it closed at 29,681.77. The index had shed 44.52 points in the previous session. The NSE Nifty index closed 0.76 per cent higher at 9153.70. "The Sensex is just 415 points away from the 30,000 level. It is likely to hit the mark in the near future," said BSE dealer Pawan Dharnidharka.

Indranil Pan, Chief Economist, IDFC Bank, said, "as expected, US Fed increased the funds rate by 25 bps. However, US dollar appreciated and US 10year yield fell as the commentary came across was dovish. The communication continued to emphasise that Fed would be “gradual” in raising rates as there was virtually no change in the economic forecasts." With risks of political blowout from Europe softening, the pace of USD appreciation could be muted, but will continue. "The rupee had appreciated recently on the back of political developments domestically, but we think that it could have reached its floor. The RBI is unlikely to change its policy stance – as domestic inflation will continue to head higher," Pan said.

China, Hong Kong and Japan roseupto2.08percent.ineurope, major shares ran up in early session. Investors in Asia sent equities higher following indications the US Federal Reserve means to maintain a measured pace. Some investors had braced for the possibility that policy makers would signal a quicker pace, and as a resultthedollarsoldoffonepercent in US trading while global sovereign-debt yields pulled back.

According Karthikraj Lakshmanan, Senior Fund Manager, BNP Paribas Mutual Fund, Indian markets continued to witness positive momentum and trade in a narrow range through the day. On the macro front, trade numbers exhibited some strength as exports during February 2017 witnessed a double digit positive growth of 17.48 per cent at $24.49 billion.

"Though the record peaks have kept the investors nervous, the prospects of a gradual US rate hike look to have improved the risk appetite, which is also reflected in the marked decline in volatility. This should also mean, save a negative surprise from monsoon forecast, Q4 numbers should prompt investors to be forward looking," said Anand James, Chief Market Strategist, Geojit Financial Services.

Hefty buying by foreign institutional investors, the main market mover, was seen across the board. FIIS, which bought stocks worth over Rs 4,000 crore on Tuesday, bought shares worth Rs 1,141.13 crore on Wednesday, as per provisional data. Adani Ports jumped maximum (4.73 per cent). Tata Steel surged 4.30 per cent amid reports that the company will finalise a decision on UK business merger by May. Other gainers were Bajaj Auto (2.31 per cent), Asian Paints (2.23 per cent), Infosys (1.62 per cent), Tata Motors (1.49 per cent) and HDFC (1.47 per cent). The BSE metal index went up 2.84 per cent.

Investors are hopeful that the strong performance of BJP in Uttar Pradesh and Uttarakhand despite weaker performances in the states of Goa and Punjab in the recent state elections may intensify the government’s economic reform efforts, accelerate economic progress of UP and strengthen the government’s resolve to address key pending issues like NPAS and power. "Nonetheless, earnings will be the key to the market’s performance as global and domestic interest rate cycles will likely turn less supportive," said a Kotak Institutional Equities report.

China, Hong Kong and Japan rose up to 2.08%. In Europe, major shares ran up in early session. Investors in Asia sent equities higher following indications of US Fed maintaining a measured pace