Markets get second wind as Fed sticks with stimulus

Mumbai: India’s benchmark equity indices jumped to their highest close in nearly three years on Thursday, joining the party of world equities markets after the US Federal Reserve surprised investors by opting not to reduce or end its $85-billion-a-month bond buying programme.

The rupee also appreciated, in line with its emerging markets peers, and ended at 61.78 a dollar, up 2.61% from its previous close.

Analysts see further gain in equities if, encouraged by the Federal Reserve’s decision and a stable and appreciating rupee, the Reserve Bank of India (RBI) governor Raghuram Rajan on Friday opts for unwinding the central bank’s July measures to tighten liquidity and increase short-term rates.

“RBI can withdraw fully or partially some of the extraordinary liquidity tightening it had done to support rupee, including ceiling on LAF (liquidity adjustment facility) and steep hike in MSF (marginal standing facility),” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services Ltd.

The Federal Reserve’s action (or inaction) has also provided a window for Indian policymakers, who have, in recent weeks, had reason to cheer, with the trade deficit shrinking to a five-month low in August, factory output reviving in July, and the rupee appreciating after almost nudging 69 to the dollar. To be sure, rising inflation remains an area of concern, with wholesale inflation rising to 6.1% in August from 5.79% in July. 

Himanshu chaudhary

pgdm - 1st