Sensex, Nifty Rise Sharply, Extending Gains From Previous Session, Albeit Risks Remain

Indian equity benchmarks rose early on Friday, extending gains from the previous session, tracking a rally in Asian bourses as the dollar softened with markets becoming more relaxed following the European Central Bank’s record interest rate hike and the US Federal Reserve Chair’s hawkish remarks.

Those developments bolstered expectations for aggressive tightening in the future and suggest high volatility in Friday’s trading session globally.

The death of Queen Elizabeth II, which provoked an outpouring of sympathy from all across the world, Friday, is overshadowing the wild market gyrations.

For now, though, the BSE Sensex index rose over 350 points and the broader NSE Nifty index opened in the green.

Early on Friday, the MSCI index of Asia-Pacific shares outside Japan managed a 0.3 per cent increase. However, it was on track for a weekly decline of 1.2 per cent after being hammered by several excessive rate hikes from central banks around the world this week – and the anticipation of more to come.

The Hang Seng Index in Hong Kong rose 0.4 per cent, the Nikkei in Japan advanced 0.3 per cent, and blue chips in China edged up 0.2 per cent.

Following significant selling earlier in the week, Wall Street’s major indexes made minor gains overnight that left the S&P 500 above 4,000 points for the first time since late August.

As investors assessed whether monetary tightening to tackle inflation in the US and Europe is getting closer to being priced in, markets stabilised, S&P 500 futures rose 0.3 per cent, and Nasdaq futures were up 0.5 per cent, signalling increased risk-taking.

Global equities are on track to post their first weekly gain in four weeks, providing some relief from the bear-market warning signs that have been circling the markets due to monetary tightening, energy problems, and China’s slowing economy.

“The markets have finally digested the fact that rates are almost certain to go up by 75 basis points when the Fed moves next,” JoAnne Feeney, partner and portfolio manager for Advisors Capital Management, said on Bloomberg TV.

“What we are seeing though is some recognition that perhaps the sell-off that we saw in the second half of August was a bit overdone,” she said.

Despite the “quite substantial social costs” associated with previous inflation battles, Fed head Jerome Powell said on Thursday that the bank is “fully committed” to containing inflation.

“With Powell offering little in the way of push-back against market pricing, we think that the FOMC will affirm market expectations. In addition, we now expect a 50 bps (basis point) hike in November, though it is a close call,” analysts at Barclays told Reuters.

That came after news from across the Atlantic confirmed broader expectations for the European Central Bank’s (ECB) fight against surging inflation.

While the currency union’s economy is expected to enter a winter recession, the ECB hiked interest rates by a record 75 basis points and signalled additional increases to fight inflation.