The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.
For the day you can bank on the Fed's move to push key Indian indices to a lifetime high. The Federal Reserve cut its benchmark interest rate by 50 basis points. The US central bank hinted at more steps to prevent a recession in the US amid a chronic slowdown in the housing sector and the turmoil in credit market. The result. US stocks soared as did bond prices but the dollar fell to a new low against the euro.
Markets also surged across Europe, Latin America and in other emerging markets. Barring China, most Asian markets are all up sharply this morning. We will also have a gap-up opening here and the Sensex and the Nifty are expected to test new peaks.
The rupee should also benefit from the Fed move, in line with other Asian currencies. As a result, we will see some fresh pressure on IT stocks. On the whole, the bulls, not only in India but across the globe, have got a new lease of life thanks to Bernanke & Co. Still, doubts remain about the strength of the US economy and whether the rate cuts are enough to shore up the housing sector there.
Back home, the market should resume its advance and the Sensex could test the 16k levels today itself. FII inflows may also pick up amid the resumption in the so-called 'carry trades'. The Fed decision might also prompt the RBI to relax its hawkish stance on the monetary policy going forward.
The next trigger could come from the quarterly results. However, the political uncertainty could well put some hurdles in the way for the bulls, albeit only temporarily. As we mentioned yesterday, the spurts could be used to lighten your position. Some cooling off may well be on the cards in the coming days.
US stocks jumped the most in four years on Tuesday after the Fed cut interest rates and raised hopes that the US economy could come out of a prolonged housing slump and turmoil in the credit markets.
The cut in the Fed's benchmark short-term rate, the first in four years, was more aggressive than many investors had expected. The market responded by pushing the S&P 500 to its biggest percentage gain since March 2003. It was the blue-chip Dow's best one-day percentage gain since 2003.
Before the rate cut was announced, Lehman Brothers reported unexpectedly strong earnings that helped allay worries about the impact of credit market contraction on banks. Its shares jumped 10%.
The Dow Jones Industrial Average shot up 335.97 points, or 2.51%, to end at 13,739.39. The S &P 500 Index surged 43.13 points, or 2.92%, to finish at 1,519.78. The Nasdaq Composite Index climbed 70 points, or 2.71%, to close at 2,651.66.
Oil stocks also rose sharply, as crude oil futures hit a fresh record high above $81 a barrel.
Banking gains pushed European markets higher. The pan-European Dow Jones Stoxx 600 index rose 1.5% to 367.67, as UK mortgage banks advanced following a pledge by the British government to guarantee deposits at lender Northern Rock.
The FTSE 100 index rose 1.6% to 6,283.30 and the French CAC-40 index advanced 2% to 5,549.35. The German DAX 30 index added 1.3% to 7,575.21.
Asian stocks climbed the most in a month following the Fed decision. Toyota and Samsung Electronics led gains by regional exporters. Mizuho Financial Group and National Australia Bank advanced on speculation that the Fed's rate cut will ease the current credit crunch.
Japanese exporters were also boosted after the yen weakened against foreign currencies, increasing the value of their overseas sales.
The Morgan Stanley Capital International Asia-Pacific Index jumped 3% to 153.48 as of 10:33 a.m. in Tokyo, headed for the biggest gain since Aug. 20. The Nikkei 225 Stock Average surged 3.5% to 16,347.70 in Japan.
Australia's S&P/ASX 200 Index gained 2.2% while South Korea's Kospi index climbed 2.9%. All markets open for trading in the region advanced.
All eyes on Fed
Bulls staged a strong come back in the second half erasing early losses ahead of the Federal Reserve meet. The recovery was led by Banking, Oil & Gas and Small-Cap stocks. On the other hand shares of Consumer Durable and Pharma stocks were offloaded. Also the frontline stocks like L&T, SBI, ICICI Bank and Reliance Industries provided vital support holding the markets from any further dip. Finally, BSE 30-share benchmark Sensex surged 164 points to close at 15669. NSE Nifty added 51 points at 4546.
Trent surged by over 2.5% to Rs631 after the company announced that it has formed a strategic partnership with Benetton India Limited. The scrip touched an intra-day high of Rs648 and a low of Rs615 and recorded volumes of over 66,000 shares on NSE.
Tata Steel edged higher by 0.7% to Rs710. Moody cut the company’s outlook to negative. The scrip touched an intra-day high of Rs713 and a low of Rs702 and recorded volumes of over 13,00,000 shares on NSE.
PVR slipped by 1% to Rs198. The company announced that they would sell 1.2mn warrants to Founder Priya Exhibitors. The scrip touched an intra-day high of Rs204 and a low of Rs195 and recorded volumes of over 46,000 shares on NSE.
Indian Hotels edged lower 0.7% to Rs129. Reports stated that the company has acquired 10% stake in US based Orient Express Hotels for Rs8.5bn. The scrip touched an intra-day high of Rs135 and a low of Rs129 and recorded volumes of over 25,00,000 shares on NSE.
Lanco Infratech surged by over 4% to Rs330 after the company announced that they have entered into a MoU with Gulftainer Company Ltd, UAE to co-operate on a variety of port and transportation projects. The scrip touched an intra-day high of Rs334 and a low of Rs316 and recorded volumes of over 18,00,000 shares on NSE.
Educomp advanced by 1.3% to Rs2900 after the company announced that it has acquired 70.05% stake in Canada’s Savvica. The scrip touched an intra-day high of Rs2933 and a low of Rs2845 and recorded volumes of over 1,00,000 shares on NSE.
Banking stocks recorded smart gains on expectation’s that Federal Reserve would cut the interest rates and RBI would follow suit. ICICI Bank gained by 3.2% to Rs924, SBI was up by 3% to Rs1694 and Bank of Baroda added 4.5% to Rs295.
Realty stocks gained momentum towards the end. Akruti was the pick pf the day as the scrip surged by over 10% to Rs695, DLF gained 1% to Rs656, Unitech edged higher by 0.5% to Rs281, and Sobha added 1.2% to Rs763.
IT stocks were on the receiving end as rupee continues to strengthen against the US dollar. Wipro slipped by 1.2% to Rs444, I-Flex dropped by 1% to Rs1894 and Mastek slipped 0.2% to Rs290.
Capital Good stocks also ended higher led by gains in the index heavyweights. Siemens surged by over 3% to Rs1283, ABB rose 1.8% to Rs1232, L&T gained 1.1% to Rs2618 and Punj Lloyd added 1.7% to Rs295.
Small-Cap stocks continued to be in demand as the index was up by 1.6%. Adhunik Metal surged by over 7.5% to Rs100, Andhra Cement rose over 8.5% to Rs39 and Binani Industries jumped by over 6% to Rs208.