Special Correspondent

Witnesses the biggest ever single day gain of 654 points, a sequel to Fed rate cut

Unabated rise in institutional fund flow into India

Fed fighting recessionary risks to the U.S. economy

MUMBAI: Stock markets on Wednesday gave a thumbs up to the decision of the U.S. Fed Reserve to reduce the rates by 50 basis points, as the benchmark 30-share BSE Sensex moved up sharply by 653.63 points or 4.17 per cent at 16322.75. By staying well above the 16000-mark, it outperformed most Asian peers and it was the biggest single day gain.

Manika Premsingh, Economist, Edelweiss Capital, said the move by the U.S. Fed chief itself was a bit of a surprise. The street was expecting a 25-basis point cut. The 50-basis point cut was, therefore, a surprise for the market. The Dow reacted sharply as soon as the announcement of the rate cut. Global markets were firm due to this event as well. India was no exception to this, Ms. Premsingh added.

On the National Stock Exchange (NSE), the 50-share Nifty was up by 186.15 points or 4.09 per cent at 4732.35. The BSE Realty Index was one of the biggest gainers. It opened at 8188.73 and touched an intra-day high of 8491.49 to close the day at 8464.54, up 461.43 points or 5.77 per cent from its previous close of 8003.11. It touched an intra-day low of 8188.73.

“Given strong inflow of fund from foreign institutional investors (FIIs) and India’s inherent economic strength, further cuts by the U.S. Fed will only positive for Indian markets,” Ms. Premsingh said. According to her, these developments prove three points: it suggests to the market that U.S. Fed is to address the liquidity crisis if it should occur; it implies that the U.S. may not slow down as much as implied by the recent correction in the housing market and the U.S. Fed is fighting recessionary risks to the economy: and it becomes cheaper to borrow from the U.S. and invest in emerging markets.

PTI reports:

The rally was so strong that all sectorial indices led by realty, banking and oil and gas ended with a sharp surge.

Marketmen said the rate cut might compel foreign investors to invest in high yielding assets in emerging markets such as India and China.

“It is a milestone indeed, but considering the way the market has gained the last 600-800 points, it makes us believe that something is wrong somewhere,” Arun Kejriwal of Kejriwal Research and Investment Services (KRIS) told PTI.

This trend shows that global cues had an influential effect on our market. “We should be growing on our own strength,” Mr. Kejriwal cautioned, adding that the “sub-prime issue is not resolved, not sorted out, it has just been postponed.”

When asked whether Wednesday’s rally signalled an end to sub-prime woes, JPMorgan AMC CEO Krishnamurthy Vijayan said, “Indices tend to rally or fall on news, and we recommend that investors ignore short-term movements in the markets. The Indian stock market has seen numerous ups and downs, and these do not reflect on the intrinsic worth of the underlying businesses nor do they affect our outlook on the country.”

“We are consistently bullish on India,” Mr. Vijayan added.

On the Fed rate cut exerting a greater influence than domestic factors such as slowing industrial production growth, Mr. Vijayan said: “While there may have been a short-term blip in the growth rate, we believe there is a long term secular growth trend in the Indian economy. Most long-term investors are in this market on the basis of their expectations from India in the next decade and beyond and a couple of days’ euphoria or downturn does not affect their decision-making.”

“Tomorrow will be another day. The political scenario and second quarter results would play an important factor,” he said.