Rally gains momentum after Fed's rate cut

NEW DELHI: The rate cut by US Federal reserve in last week has provided a boost to Indian stock markets. In the last six trading sessions, the 30-share sensitive index gained 600 points to close at 16,921 on Wednesday.

Foreign fund managers say that the low interest rate regime in US would help the Indian industry achieving higher growth, making Indian companies more attractive to foreign investors.

This is evident as FIIs have invested $1.93 billion in the five trading sessions till Tuesday since the Fed announced the rate cut. Till September 19, the net FII inflow in the equity market was $1.19 billion.

Foreign fund managers feel that softening of interest rates in US will help Indian industry and the economy. "A turn in the US monetary cycle de-escalates exogenous interest rate risk to the Indian economy,'' said a fund manager at Merrill Lynch.

A Merril Lynch report said the US decision is likely to help arresting any rise of interest rate in India. It added that RBI might not cut bank rates and repo rates, following US Fed policy. But, it will certainly not hike the rates, as this will increase the arbitrage opportunities between India and US. A senior fund manager said, RBI will increase its money market intervention to contain the rupee appreciation, considering inflation coming down to below 4% at present.

To do this, RBI would increase purchase of dollar from the market and infuse rupee, which in turn will increase liquidity in the system.

Meanwhile, Domestic investors played a role in taking the market to a new peak of 17,074, but it was foreign fund managers who pumped big bucks into the Indian market, thanks mainly to cheap funds in the US because of the recent cut in interest rates there. In five days, foreign institutional investors (FIIs) pumped in $2 billion, even as domestic funds booked profits and took money off the table, according to Sebi data.

"With the sensex at 17,000, the next target for the market is the 5,000 level for the NSE Nifty, said Arun Kejriwal, director, KRIS.