Markets may remain volatile, however, as the Fed has not yet started deleveraging its balance sheet and will start in May.

Shares rose Thursday to clock their best week in more than a year, after the US Federal Reserve’s 25 basis point (bps) rate hike was largely factored in. This is the first rate hike since 2018, as the Fed keeps rates close to zero levels since the start of the pandemic in 2020. While it has signaled six more hikes, Chairman Jerome Powell said the US economy remained “very strong” and a stricter policy. In May, a roadmap to put the balance sheet and possession of Treasury bills in order will begin.

Following on from other global markets, benchmarks in India are also up 4.2% over the past week. In addition, foreign portfolio investors (FPIs) also made buyers in Indian stocks on Wednesday after a lengthy selloff streak. With Thursday’s gains, benchmarks have fully recovered from the losses that followed the Russian invasion of Ukraine. Despite the rate hikes and the balance sheet expected to kick off soon, strategists believe India is better positioned to battle the external storm. According to ICICI Securities, India is in a better position than other emerging markets and has significant foreign exchange reserves. Furthermore, market sentiment improved on hopes of progress in the peace talks between Russia and Ukraine, along with a drop in crude oil prices.

A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC, told FE: “Although the Federal Reserve has raised prices, it will not affect growth. The economy will be able to absorb more rate hikes. Rate hikes are not seen as negative because They are very low Also FPIs have returned to India which is positive for India as it is seen as a better alternative to China We expect the FOMC to hike rates twice this year and the market 160 basis points of a rate hike This time the market is prepared for rate hikes.”

Markets may remain volatile, however, as the Fed has not yet started deleveraging its balance sheet and will start in May. According to Nitin Master, portfolio manager at Axis Securities, “More than the rate hike trajectory, we believe that, more than the Fed rate hike trajectory, it is crucial to keep an eye on the Fed’s proposed balance sheet cut, which is expected to be “Despite the recent rally, markets will remain volatile for the foreseeable future due to tightening liquidity conditions globally.”

Foreign portfolio investors (FPIs) bought stocks worth $70.91 million on Wednesday, marking their third such purchase in more than a month. On the other hand, domestic investors bought shares worth $101.4 million. The volatility index also cooled to a level of 22.61 on Thursday, after reaching a high of 31.98 on February 24.

With a rally of 1,279 points in intra-day trading on Thursday, the Sensex settled 1,047.28 points higher at 57,863.93. The wider Nifty 50 added 311.70 points to close out the session at 17,287.05. Both Sensex and Nifty are now above their 200-day simple moving averages as they clocked their best week since February 2021. In addition, analysts foresee an increase of 2-3% in the coming sessions. The Market’s Fear Meter – India VIX also cooled to 22.61 after reaching 31.98 during the outbreak of the war.

US markets also followed the positive comments from the central bank. As a result, the S&P 500 ended up 2.2%, while the Nasdaq composite gained 3.8%. Shares in China also rose after an overnight rally in US markets. China’s Shanghai Composite ended up 1.4% on Thursday.

Home, excluding IT, all sector indices ended in the green, with auto, financials and real estate rising the most. Overall market breadth also supported bulls, as 2,099 of the 3,529 shares traded rose on the BSE, while 1,303 fell.

This post Best week in over a year: Stocks soar as fear eases and FPIs return

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