Will the Bombay Stock Exchange (BSE) ride on the ripples created by a key interest rate cut by the US Federal Reserve and its sensitive index Sensex hit the new psychological level of 85,000 shortly? Indian share markets reacted positively to the announcement of a rate cut of 50 basis points or half a percentage point on Wednesday night by the Indian Standard Time. It jumped soon after the stock exchanges were opened at 9 AM on Thursday.
Strong US Economy To Help India
The capital market experts believe the monetary policy statement made by the Fed seems to admit that the US economy is in a strong position after its recent unemployment and inflation data were found to be not in a very bad shape, though not very good either. As the inflation rate is coming close to 2% and the unemployment figure stands at about 4%, it can be considered to be fair enough and balanced.
FII Buys After Federal Reserve Announcement
According to the provisional data available on the NSE, the Foreign Institutional Investors (FII) bought scrips with a net worth of about Rs 11,153.69 crore. In comparison, the Domestic Institutional Investors (DII) purchase was valued at Rs 152.31 crore on Thursday morning.
US Stock Exchanges Slip After Rate Cut
On the contrary, the US stock exchanges reacted negatively to the announcement made by the Federal Reserve and closed on a lower note on Thursday. While the S&P 500 closed 0.29% lower at 5,618.26, the index of the technical shares, NASDAQ Composite slipped 0.31% to settle at 17,573.30. On the other hand, the Dow Jones Industrial Average index dropped 103 points or 0.25%, to end at 41,503.10.
Fed Reserve Needs To Do More
Though the Fed Reserve said that the key bank rates would now range between 4.75% and 5%, the experts believe enough is to be done now. Analysts have said that the Federal Reserve will have to bring the bank rates to 3% in the next one and a half years. It means the banking regulator has to slash at least thrice by about 50 basis points.
Bullish BSE
The BSE was bullish and soaring before the Fed Reserve’s announcement.
A day before the Fed’s announcement, the foreign portfolio investors (FPIs) were the net buyers, purchasing Rs. 420 crore, while the Domestic Institutional Investors (DIIs) purchased stocks worth Rs. 874 crore. On Tuesday, the net long position of foreign institutional investors (FIIs) fell from Rs. 2.2 lakh crore to Rs. 2.13 lakh crore.
Eyes On Indian Economy
The experts with an eye on the Indian economy are very much bullish also and they are confident that the economy will further shine and bring good results on various parameters of the economy. The economists point out that the stock markets generally perform best when the interest rates are stable or come down gradually.
It may also be noted that when the GDP growth rate begins to decline sharply, it prompts sharp rate cuts to support the economy. But it may not be a positive signal for the stock markets. The assumption that lower interest rates automatically result in better outcomes in the stock markets may not prove right at all times.
Positive Outlook For Indian Economy
As the World Bank and the IMF have issued a positive outlook for the Indian economy and estimated the GDP to grow between 6.5% to 7%, the experts believe the stock market will remain bullish overall for some time to come. If all the parameters of the economy are fine, the BSE Sensex will keep on soaring and may hit the psychological level of 85,000.
