Rate cut optimism fuels market rally, makes investors richer by Rs 6.5 lakh crore crore

The optimism in the market was primarily fueled by soft US inflation data, which was at a 3-year low of 2.5% in August.
BSE Building in Mumbai. (File Photo | PTI)
BSE Building in Mumbai. (File Photo | PTI)
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Following a dip in consumer inflation in the USA and rate-cut optimism across the globe, the bulls took firm control of the Indian equity market and pushed the benchmark indices to historic highs.

The BSE Sensex on Thursday gained more than 1600 points intraday and crossed the 83,000 mark for the first time while the Nifty 50 hit a record high of 25,433 points. 

The Nifty 50 gained 1.89% or 470.40 points to close the session at 25,388.90 while the BSE Sensex finished at 82,962 points, up 1.77% or 1,439.55 from the previous close.

Investors' wealth surged over Rs 6.5 lakh crore during the day as the total market capitalization of all BSE-listed companies reached a new high of Rs 467.22 lakh crore. 

The optimism in the market was primarily fueled by soft US inflation data, which was at a 3-year low of 2.5% in August. This has increased expectations that the Federal Reserve will start its rate-cutting exercise from next week. 

BSE Building in Mumbai. (File Photo | PTI)
Retail inflation eases marginally to 1-year low of 4.75 per cent in May: Govt data

"Across the board buying support lifted both benchmark Sensex & Nifty to fresh record highs as falling US bond yields and expectations of a rate cut by the US Federal Reserve in next week's policy meeting fuelled massive optimism," said Prashanth Tapse, Senior VP (Research), Mehta Equities. 

He added that although the US CPI data may not be encouraging for aggressive rate cuts, recent economic readings showed the economy could be facing challenges going ahead, and hence the Fed may go for a rate cut.

Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers, said that the markets further gained strength on news of China cutting rates by 50 bps on $5 trillion mortgages as soon as this month to boost consumption. This came out ahead of a European Central Bank (ECB) policy meeting later in the day; providing much much-needed sentimental boost to the markets.

Of the 50 Nifty constituents, 49 closed in the green. Shares of Hindalco Bharti Airtel, NTPC, Shriram Finance, Mahindra & Mahindra, JSW Steel, Eicher Motors, ONGC, Adani Ports & SEZ, Wipro, and Grasim Industries gained between 3-4%. Among the sectoral indices, NIFTY Metal and NIFTY Auto were the top gainers, closing higher by 2.87% and 1.93%, respectively.

In the broader market, the indices underperformed the benchmarks. NSE Midcap 100 gained 1.19% while NSE Smallcap 100 advanced 1.01%. 

Vikram Kasat, Head - Advisory, PL Capital - Prabhudas Lilladher, said that recent rally in the benchmark indices have been carried by defensive themes like fast-moving consumer goods, information technology and pharma. The shift in sentiment towards defensive plays has taken both the benchmarks to yet another record high on Thursday. 

"However, this leg of the rally marked a contrast with previous ones. In contrast to earlier trends, the latest rally saw a pullback in the previously raging PSU stocks, as defensive sectors took center stage and attracted strong investor interest," added Kasat. 

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