India stock market soars on Thursday, experts see more volatility ahead

India stock market soars on Thursday, experts see more volatility ahead

Indian equities gained over 1.7% on Thursday amid a rally in banking and information technology (IT) stocks, and positive global cues following the outcome of the US Federal Reserve’s policy.

The US central bank delivered a second consecutive 0.75 percentage point rate hike on Wednesday, which was along expected lines.

The USD-INR spot closed 14 paise lower at 79.75, thanks to the less than hawkish stance of the US Fed, which hinted that it is looking to slow the pace of rate hikes in the upcoming meetings.

Market watchers, however, believe that the market is discounting the grim statistics.

“Markets chose to hear that the ‘Fed put’ is alive and well, and it fueled a rally in both equities and bond yields. I think this just sets the stage for a correction, and more volatility ahead,” said Sonal Desai, CIO of Franklin Templeton Fixed Income Group.

US Fed chief Jerome Powell said that policy interest rates are now in the neutral range, the economy has started to weaken, and that the full impact of the rate hikes delivered so far has yet to be felt. This has reinforced the markets’ conviction that we are approaching the peak of the tightening cycle, and that by the first quarter of next year, the Fed will reverse course and start cutting rates, she said.

“But Powell also said that the FOMC’s June views on the likely path of rates still stand, and those views suggest the Fed would keep hiking into 2023 to a peak of about 3.8%. Powell noted that another “unusually large” rate hike in September could not be ruled out,” said Desai.

The US economy shrank for the second quarter in a row, as its GDP fell by 0.9% on an annualised basis, data showed.

FPIs have sold net equities worth $28.7 billion in the year to date, although the past few days in July have seen inflows.

The risk of further FPI outflows remain, especially if aggressive central bank rate hikes continue and oil prices remain uncomfortably high.

“Markets have reacted to the statement given by the Fed chairman which was less hawkish than expected. But further rate hikes are in store and it is too early to predict a peak,” said UR Bhat, co-founder, Alphaniti Fintech.

“The US has seen a GDP contraction and inflation is yet to be tamed. There is trouble brewing elsewhere with Russia continuing to put a lid on its gas supply and China’s mortgage and banking crisis worsening. So, the market seems to be discounting the on-ground reality. Indian equities may remain range-bound with a negative bias until FPI flows reverse,” Bhat said.

Asian indices rose on Thursday as the prospect of a slower pace of Federal Reserve monetary tightening filtered across global markets. European shares came off highs as a string of downbeat earnings took the shine off a global rally.

All sectoral indices on the NSE ended higher on Thursday. The Nifty IT surged 2.8%, Nifty Financial Services rallied 2.4% and the Bank Nifty climbed 1.6%.

Market participants will now be eyeing earnings announcements for further cues.