Nifty, Sensex hit new peaks as US Fed signals rate cuts in 2024; here’s what experts make of it
The Sensex rose over 955 points to its new high of 70,540, whereas the broader Nifty50 index advanced 263 points to its record high of 21,189.55.
Both indices have surged over 5 percent just in December, giving negative returns in just 2 of 10 sessions so far this month. Meanwhile, they have rallied 16 percent in 2023 YTD and 13 percent in the last 1 year.
On December 13, the US Federal Reserve opted to keep benchmark interest rate steady, signaling a probable end to the tightening of monetary policy. Notably, Federal Reserve Chair Jerome Powell hinted at potential rate cuts in 2024, catching the market off guard. Market analysts are now projecting up to three rate cuts in 2024.
The Fed’s policymakers conveyed their expectation of making three quarter-point cuts to the benchmark interest rate next year, a smaller number than the five anticipated by financial markets and some economists. This relatively restrained forecast for 2024, possibly commencing in the second half of the year, suggests that officials believe elevated borrowing rates will still be necessary for a significant portion of the year to continue curbing spending and inflation.
The Federal Reserve’s dovish remarks had a notable impact, propelling the Dow Jones Industrial Average beyond the 37,000 mark for the first time. These statements are interpreted as a signal of the central bank’s success in addressing inflation, a persistent concern for both bond and equity investors in recent years.
This stance represents a departure from the Fed’s previous position, where it had suggested that rates could stay elevated for an extended period due to reservations about fully controlling inflation. The latest remarks indicate a shift towards a more accommodative policy, with the central bank poised to employ measures to support economic growth.
“The clear dovish message from the Fed yesterday has set the stage for a smart Santa Claus rally in the coming days, and this can even trigger a pre-election rally that can take the markets to a series of new highs. The takeaway from the Fed message yesterday is that the tightening cycle is over and three rate cuts are possible in 2024. The market expects four. The record-breaking rally in the Dow will send many indices to new records. The crash in the US 10-year yield to 4 percent will trigger large capital flows to India,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
He believes that the main beneficiaries will be the largecaps, particularly the fairly valued largecaps in banking. IT too is likely to attract buying. Retail exuberance can lift the mid and smallcaps, too; but there is no valuation comfort in this segment, added Vijayakumar.
Let’s take a look at what other experts have to say regarding the latest US Fed policy:
Dhawal Ghanshyam Dhanani, Fund Manager, SAMCO Mutual Fund
Fed sticks to its “temporary pause” stance on interest rate hikes for the third consecutive time while giving a hint of interest rates reaching their apex implying that, after months of aggressive tightening and a bias towards moving rates higher, they may not need to raise them again. In a dovish turn of events, the Fed has adopted a more ambitious stance towards policy easing, embracing the mantra of “don’t fight the markets.”
Committee members have officially penciled in at least three rate cuts throughout 2024, assuming standard quarter-percentage-point increments. While this falls short of the market’s anticipated four cuts, it represents a significant departure from the Fed’s previously cautious approach.
For an institution historically hesitant to declare victory over inflation, the updated projections and revised statement signal a remarkable transformation in both tone and perspective. However, it remains crucial to exercise caution, lest this shift culminate in a premature celebration of victory, if the Fed relinquishes its grip on economic control too soon.
Mohit Ralhan – CEO, TIW Capital
The Fed has achieved considerable progress in bringing down inflation without causing serious economic damage. However, there is still room for improvement as core inflation is running above 3 percent, much above the central bank’s target. Wage growth is also higher than what is consistent with the inflation target. This means that possibility of further tightening is still not completely off the table, but the chances are low.
Given the lags with which monetary policy transmission takes place, the FOMC wants to be ahead of the curve by taking into account the risks to growth from higher rates. As inflation heads lower, real rates could become too restrictive if the Fed does not calibrate policy.
The meeting outcome suggests that FOMC members will keenly monitor any deterioration in economic data or sentiment indicators besides the inflation trajectory.
Technical View
Shrey Jain, Founder and CEO, SAS Online – India’s Deep Discount Broker
Expecting a rate pause from the Fed meeting, the market had already factored it in. However, all eyes were on Chairman Powell’s comments during the press briefing. The dovish tone from the US Fed triggered a global market rally, with Indian stocks following suit. Both BSE Sensex and NSE Nifty surged to new record highs, each gaining over 1 percent, with Sensex experiencing an 850-point increase, and Nifty approaching 21,160.
Positive sentiments prevail both globally and domestically, with Nifty poised for a breakout above 21,050 and Bank Nifty above 47,600. On the Weekly Expiry day, a robust support zone for Nifty lies between 20,925 and 21,025. With the Nifty opening above its highest Call base at 21,000 Call strike, there is an expectation of a move towards 21,300 levels, driven by short covering.
Gold
Colin Shah, MD, Kama Jewelry, stated that lower interest rates bode well for the gold and gems and jewellery sector at large. Gold has been making new highs, expected to continue the bullish trend.
“The US Fed kept interest rates on hold, but the commentary was dovish. Especially, the indication of rate cuts as early as next year and well after that. The only caveat is that economic indicators are on track. Geopolitical tensions and a slowdown in global economic growth will boost gold prices. On the domestic front, we expect the demand trajectory to remain robust. The ongoing wedding season is expected to keep demand for gold and jewellery on the higher side,” he said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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Published: 14 Dec 2023, 01:21 PM IST
