D-Street bulls Powell ahead on US Fed’s interest rate cut cues

India's key stock indices, the Nifty and Sensex, gained over 0.75% on Monday spurred by Federal Reserve chairman Jerome Powell's comments that "the time has come for policy to adjust," indicating that the US central bank could cut interest rates as soon as September. Sectors directly impacted by a likely rate cut led the Nifty to close above 25,000 for the first time since August 1. Analysts see it going to 25,700.

The NSE Nifty rose 187.45 points, or 0.76%, to close at 25,010, just 70 points shy of its all-time high of 25,078.3. The BSE Sensex rose 611.9 points, or 0.75%, to end at 81,698.

Indian indices outperformed some markets in Asia on Monday - China remained flat, South Korea declined 0.14% and Taiwan rose 0.37%. Hong Kong rose 1.06%.

"Indian markets on Monday performed better than Asian peers as they had already seen a rally in the anticipation of rate cut in the last two weeks, whereas India had gone down, and saw some catching up," said Rohit Srivastava, founder of indiacharts.com.

Srivastava said the Nifty can move up to 25,700 levels in the near term.

In anticipation of a rate cut, the US 10-year treasury bond yield has fallen from 4.19% to 3.78% in the past month. The dollar index, which tracks the greenback's strength against other major currencies, has fallen from 104 to 100.8 in this period.

Nifty Metal Index was the top gainer on Monday at 2.16%, followed by the realty, IT and consumer durables indices, which were up 1.3-1.8%.

"Sectors which are interest-rate-sensitive did better like metals, which benefited from a clarity in rate cuts and the dollar depreciating, along with IT, real estate, and autos, which has already been doing well," said Srivastava. "The only laggard has been banking, which has remained lower due to uncertainties around domestic rates and inflation, but we see it doing better going ahead."

The Nifty Bank index has fallen 0.3% in the past month, while the Nifty has gained 0.7% in the period.

Foreign portfolio investors (FPIs) bought shares worth a net ₹483 crore and domestic institutions were buyers to the tune of ₹1,870 crore, on Monday. FPIs had sold ₹11,940 crore of equity in August as of Monday.

"Indian markets went up on Monday as they stand to benefit in terms of FPI inflows and more investment in the country if the US Fed goes ahead with a rate cut," said Aamar Deo Singh, senior vice president at Angel One. "It is important for the index to sustain above 25,000 for the up-move to continue to 25,300-25,400 in the near term."

Singh said that while the overall trend in markets seems positive, investors have to be picky about stocks at these levels. They should go for a multi-cap allocation with a large-cap heavy portfolio.