The Fed effect was shortlived on Indian markets. The Sensex opened with a wide gap of 492 points following the overnight 75 basis point cut in the US Federal Reserve lending rate. Taking a cue from the Dow Jones, which closed up 420 points last night, Indian markets moved up, but gave up gains as European markets slipped in to red in the afternoon. From top gains of 632 points in the morning, the Sensex ended the day up 161 points at 14,994.
“The Fed rate cut is only a measure to save the US economy and is not likely to result in any inflow into Indian markets,” said Ramesh Patel of JNP Shares and Stocks. He added that the overleveraged market players continued to sell stocks to repay their short-term borrowings and this would only tighten the bear grip.
A handful of Indian bank stocks held on to gains even as investors started booking profits. State Bank of India completed its Rs 16,700 crore rights issue successfully and the stock bounced back from its five-month low to Rs 1,602.85. Private sector bank Yes Bank moved up 8.5 per cent after it clarified that it had no uncovered exposure in the foreign exchange derivatives market.
An ideal policy boost to the Indian economy right now would be the one that addresses the slowdown in industrial growth, said Sachidanand Shukla, economist with Enam Securities. "Average inflation for the year should be contained at 5 per cent and I expect that Reserve Bank of India could cut the repo rate by 25 basis points by July," he added.
Price cuts by automobile companies following the excise duty cuts in the budget and the possibility of interest rate cuts led to some amount of buying in automobile stocks and Tata Motors and Mahindra and Mahindra were among the top gainers in the Sensex. Information technology stocks, too, staged a comeback with Satyam, TCS, Wipro and Infosys ending the day with gains as contrarian investors bought stocks that had fallen considerably in the past few months.