Bullish surge: Stock markets rally as Federal Reserve signals rate cuts

Mumbai: In a resounding response to the positive signals from the US Federal Reserve, the stock market closed on a high note on Thursday, marking a significant uptrend after the central bank's indication of concluding its aggressive hiking campaign and projecting a series of rate cuts in the coming year.

Nifty soared to an all-time high of 21,210, reflecting the positive momentum in the wake of the Federal Reserve's accommodating stance.
The Sensex recorded an upswing, gaining 944.12 points to close at 70,528.73. Simultaneously, the Nifty surged by 264.40 points, closing at 21,190.75.

Among the Nifty companies, 38 witnessed advances, while 12 experienced declines. Noteworthy gainers included Infosys, Tech Mahindra, LTIMindtree, Wipro, and HCL Technologies, while Power Grid, HDFC Life, Nestle India, Cipla, and JSW Steel faced losses.
Varun Aggarwal, founder and managing director, Profit Idea said, "Federal Reserve forecast three rate cuts in 2024 while Fed kept interest rate unchanged (in line with expectation). Dow Jones surged to a record high of over 500 points to close above 37k while the S&P 500 soared 1.5 per cent to close 2-year high above the 7000 level. Asia joined a global rally in stocks and bonds on signs the Federal Reserve will cut rates next year, reigniting a bullish pulse across markets as inflation eases".
The Federal Reserve's projection of three rate cuts in 2024 and the decision to keep interest rates unchanged was well-received by the market.
Dow Jones achieved a record high, surpassing the 37,000-point mark, while the S&P 500 soared 1.5 per cent to close at a two-year high above the 7,000 level.

This positive sentiment extended globally, with Asia joining the rally in stocks and bonds on indications that the Federal Reserve would implement rate cuts next year.

Aggarwal said, "Fall in oil price, persistent FIIs buying interest, strong microdata and hope of RBI to cut interest rate next year will be positive for the market sentiment. Nifty immediate support at 20769 while resistance at 21410. Now it has to hold above 20850 zones, for an up move towards 21410. We are near to target we suggested for 21234-21410".

Several factors contributed to the bullish market sentiment, including the fall in oil prices, persistent Foreign Institutional Investors (FIIs) buying interest, robust microdata, and the hopeful expectation of a rate cut by the Reserve Bank of India (RBI) in the upcoming year.
Nifty's immediate support was identified at 20,769, with resistance at 21,410. To sustain an upward movement towards 21,410, it needs to hold above 20,850 zones.

Aggarwal stated, "Interestingly, bullish momentum is very strong but indicators are getting overbought. Nifty daily RSI stands at 84, Mid Cap Nifty 85, Bank Nifty 78, and Sensex 80. All suggesting to be cautious for the short term. It will be good to keep booking some profits or to keep trailing stop losses. As one healthy correction is good for medium to long term."
Despite the robust bullish momentum, caution is advised for the short term, as indicators are showing signs of being overbought.
Daily Relative Strength Index (RSI) for Nifty stands at 84, Mid Cap Nifty at 85, Bank Nifty at 78, and Sensex at 80, all suggesting the need for prudence in the short term.
Analysts recommend booking some profits or employing trailing stop losses as a healthy correction could be beneficial for the medium to long term.

The market outlook remains positive for sectors such as petrochemicals, IT, FMCG, media, metals, and banking. While the bullish momentum is evident, caution is advised for the short term, and investors are encouraged to stay vigilant with trailing stop losses.
Despite the index rally, numerous small and mid-cap stocks are available at attractive discounts. Investors are urged to capitalize on this golden opportunity, as India continues to be a hotspot for investments, with both Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) pouring in funds.

The larger time frame for Nifty remains bullish, and investors are advised to remain invested, avoiding potential traps by focusing on index values. The market is expected to achieve the suggested target of 21,234-21,410 in the medium term, with a short-term resistance anticipated around 21,500. Daily RSI indicators, though overbought, indicate a need for a correction before resuming the bullish trend.
Investors and traders are recommended to employ trailing stop losses or hedge portfolios with bearish risk-defined strategies in anticipation of potential corrections in the ultra-short term.