The Indian rupee and stock markets jumped sharply on
Thursday i.e. 19th September 2013 tracking the global rally in risk
assets after the US Federal Reserve said it would continue buying bonds at an
$85 billion monthly pace in a surprise move. Most analysts expected the US
central bank to taper its stimulus by $10-15 billion per month.
The rupee traded at 61.77 as of 09.17 a.m. after earlier
opening at 61.70 per dollar as against Wednesday's close of 63.38. The BSE
Sensex jumped over 600 points to a high of 20,564, while the broader Nifty
surged over 185 points to a high of 6,091.
Banking stocks led the rally in domestic markets. Private
lenders Axis Bank, IndusInd Bank and ICICI Bank were the top three gainers on
the Nifty.
Technical analysts said there's no stopping to this rally
after the Fed has decided against tapering. Sarvendra Srivastava said the next
logical levels beyond today's move will be the all-time high at 6,357.
Rakesh Arora of Macquarie told NDTV that today's move will
be exaggerated, but this rally may continue for 3-4 months. Markets have moved
from "sell on rally" to "buy on dips", he added.
Asian shares and currencies rallied after the Fed's
decision. Australian stocks hit a five year high and Japan's Nikkei benchmark rose
to a two-month high. Overnight, the Dow Jones stock average and the broader
S&P 500 closed at a record high.
What Fed's decision means for investors:
Fed's decision means the policy of super easy money will
continue for a few more months. For emerging economies like India, this is good
news. Indian economy is heavily dependent on foreign funds to finance its
record current account deficit, which hit a record 4.8% of GDP in the
last fiscal.
Between June and August this year, India saw the sharpest
foreign fund outflow since the global financial crisis in 2008. Investors
feared that this exodus would worsen and the rupee would depreciate further.
But that is unlikely now.
What Fed's decision means for Indian economy:
The Fed's decision also gives Reserve Bank's new governor
Raghuram Rajan much needed leeway to formulate his maiden monetary policy on
Friday. A tapering by the US Fed would have forced Dr Rajan's hands to hike key
interest rates to defend the rupee by making India attractive for foreigners.
The Fed's outcome means the pressure on RBI to keep
liquidity tight is now less though interest rates can't be cut in a hurry, Mr
Arora said.
"India is not fully out of woods. Inflation is still
high, but small steps towards easing liquidity can be announced on the
20th," Mr Arora said.
Dr Rajan is expected to leave key policy rates unchanged and
continue with the cash tightening measures to stabilise the rupee, and focus on
checking runaway inflation, a Reuters poll showed.
Why the Fed did not taper as expected:
Fed's move comes against the backdrop of a somewhat gloomier
outlook for economic growth from US Fed officials. In a new set of quarterly
forecasts, the Fed now sees growth in a 2 per cent to 2.3% range this
year, down from 2.3% to 2.6% in its June estimates.
The downgrade for next year was even sharper: 2.9-3.1% from 3.0-3.5%.
