Indices at fresh high ahead of Fed meeting
MUMBAI: Indian markets made gains for the fourth consecutive session with the benchmark indices hitting record highs on Tuesday, as investors followed the optimism of global peers and ignored domestic inflation concerns.
The BSE Sensex closed 221.52 points or 0.42% higher at 52,773.05, while the Nifty climbed 57.40 points or 0.36% at 15,869.25.
Shares in the Asia-pacific region were mixed on Tuesday with the Nikkei 225 in Japan gaining 0.96% and the Shanghai Composite in China and Hong Kong declining nearly 1%.
Investors worldwide are looking for hints about whether and when the US Federal Reserve plans to taper its bond buying programme as the US economy bounces back from the pandemic.
Nearly 60% of economists in a Reuters poll expect an announcement in the next quarter, despite a patchy recovery in the jobs market. The two-day Fed meeting starts on Tuesday, with a final statement published after the meeting closes.
“Global cues were positive as the abating worries about inflation helped markets scale new highs. On the domestic side, the fall in Covid-19 cases and the subsequent easing of restrictions in many parts of the country lifted hopes of faster economic recovery. Markets ignored the CPI (retail inflation) data, which came in at 6.3% in May, higher than expectations, on account of an increase in food and energy prices,” Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services, said.
He added that the direction of the domestic markets would depend on the monsoon, opening-up of the economy in a phased manner, and the pace of vaccination. Though Indian markets have maintained a rally on receding covid cases, a tightening of interest rates by the US Fed may impact foreign institutional investor (FII) flows into emerging markets, which are considered as risky assets. FIIS have invested $1.54 billion in Indian shares in June and $8.13 billion in this year so far. Domestic institutional investors have sold Indian equities worth ₹1,261 crore in June, being net sellers of ₹11,229.38 crore in 2021 so far.
“At this juncture, we believe the market is factoring in a lot of positives such as steady growth, margin expansion, low interest rates, etc. At the start of FY21, expectation of a washout year did not hold true. Similarly, at the start of FY22, even with a higher number of cases, markets are viewing the impact (if any) as transitory in nature,” said PGIM India Mutual Fund.