Powell impact: Sensex, Nifty at lifetime highs, rally to proceed

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Amid the perception that stock market valuations were nearing their highs, India’s Sensex and Nifty stock indexes hit a new lifetime high on Monday thanks to the reticence of the Fed chief in his annual business speech in Jackson Hole. The Sensex rose 765.04 points, or 1.36 percent, to close a record high of 56,889. The Nifty Index rose 225 points, or 1.35 percent, to close at 16,931. The rupee also appreciated about 40 paises, closing at 73.2925 per dollar from the previous closing price of 73.6950.

Fed chairman Jerome H. Powell said Friday that he would not rush interest rates and continue the bond purchase program at its usual pace. “The timing and pace of the upcoming reduction in bond purchases are not intended to be a direct signal of the timing of the rate hike, for which we have formulated a different and much more stringent test,” said Powell.

Markets remain positive

Rohit Srivastava, chief strategist at Indiacharts, said the Fed’s comments had resulted in a weak dollar and reflation in the system. “It’s positive for rising commodity prices and stock prices. The markets should remain positive and rise for at least next year. When people run out of dollars and sell them, they usually buy assets, which are stocks and other commodities, ”he said.

A strong build-up of positions in the derivatives segment for the August expiration prevented the indices from hitting the new high in recent weeks, and markets regained momentum after that expiration, analysts Business Line said.

Vinod Nair, Head of Research at Geojit Financial Services, said, “After a strong gap-up opening, the equity benchmark indices kept trending in line with the strength of global markets throughout the day. Global markets rallied as fears about the Jackson Hole Symposium subsided after the Fed chairman’s cautious tone. Jerome Powell said he should stick to the wait and see approach to ensure the easy money policy continues this year with a lower rate of throttling.

Spurt in rupee

The rupee opened about 23 paise stronger on Monday. Last Friday the rupee was up about 53 paises against the dollar. Anindya Banerjee, Vice President, Currency Derivatives & Interest Rate Derivatives, Kotak Securities, predicts that the rupee dollar can trade with a downward trend within a 73-73.60 level in the short term.

The dollar is the reserve currency for the world as 90 percent is traded in it. So when it falls, it simply means that investors are buying assets and thus driving the price up. In India, the trend is for IT stocks to rise when the dollar rises as their business comes mostly from the US and other markets. But when the greenback falls, the share price of commodity-linked companies rises.

Metal stocks have rallied sharply in India over the past few months. On Monday, gains were led by benchmark stocks including Bharti Airtel, Tata Steel, Axis Bank, Titan Company, Maruti Suzuki India and Bajaj Finance. Small and mid-cap indices, which have been in a downward spiral in recent weeks, also experienced an upswing on Monday. The BSE Mid-Cap Index and Small Cap Index gained 1.72 percent and 1.55 percent, respectively. Broader indices also gained and outperformed the benchmarks.

Nifty Midcap 50 rose 1.95 percent and Nifty Smallcap 50 rose 1.39 percent. The S&P BSE Midcap rose 1.72 percent, while the S&P BSE Smallcap rose 1.55 percent.

The volatility index fell 0.65 percent to 13.32.

Binod Modi, Head Strategy at Reliance Securities, said, “The strong buying of mid- and small-cap stocks continued today as the recent correction made risk-return projections favorable for investors.”