Sensex Opens Flat; Energy & IT Stocks Gain

Thu, 27 Sep 09:30 am

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Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.3% while the Hang Seng is down 0.1%. The Nikkei 225 is trading down by 0.1%. On Wednesday, a Wall Street rally collapsed and stocks turned negative shortly before the market close after investors reassessed the Federal Reserve's policy statement and reduced their risk as they weighed how long the US central bank would continue to raise interest rates.

Back home, India share markets opened flat. The BSE Sensex is trading up by 28 points while the NSE Nifty is trading up by 8 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.1%.

Barring FMCG stocks, all sectoral indices have opened the day in green with information technology stocks and energy stocks witnessing maximum buying interest.

The rupee is trading at Rs 72.98 against the US$.

In the news from the global markets. The US Federal Reserve raised interest rates on Wednesday and left intact its plans to steadily tighten monetary policy, as it forecast that the US economy would enjoy at least three more years of growth.

Fed policymakers lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2% to 2.25%. The US central bank still foresees another rate hike in December, three more next year, and one increase in 2020.

That would put the benchmark overnight lending rate at 3.4%, roughly half a percentage point above the Fed's estimated "neutral" rate of interest, at which rates neither stimulate nor restrict the economy.

That tight policy stance is projected to stay level through 2021, the timeframe of the Fed's latest economic projections.

Meanwhile, the US Treasury yield curve flattened and the US dollar briefly weakened against a basket of currencies. US stocks initially extended gains but fell later in the trading session, with bank and financial stocks getting hit hard.

The Fed sees the economy growing at a faster-than-expected 3.1% this year and continuing to expand moderately for at least three more years, amid sustained low unemployment and stable inflation near its 2% target.

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

It is also worthwhile to note that the Indian stock market has done relatively well during the last period of rate hikes by the US Fed.

Take 2003-2006 for example...

Between 2003 and 2006, the US Fed rate moved from 1% to 5.25%.

Sensex's Staggering Performance Despite the Fed Rate Hikes

Despite this, the Sensex rose from 3,500 levels to more than 10,000 during the same period. This increase was supported by strong earnings growth.

So, in the long term, rate hikes (triggered by economic growth) have proved good for the Indian markets. In fact, earnings growth is at the heart of Tanushree's prediction of Sensex 100,000.

Moving on to the news from banking sector. As per an article in a leading financial daily, the State Bank of India (SBI) will sell a 4% stake in its subsidiary, SBI General Insurance Company Ltd for Rs 4.8 billion (US$66 million) in a transaction that will value the latter at over Rs 120 billion.

The partial stake sale was approved by the board of the country's largest bank on Wednesday.

Reportedly, the SBI will sell 8.6 million shares to Axis New Opportunities AIF (alternative investment fund) - I, represented through its investment manager Axis AMC Ltd, which will purchase 1.65%.

Similarly, PI Opportunities Fund-I, an AIF of Premji Invest, will acquire 2.35% from the SBI.

The PSU bank said it will hold 70% in SBI GI after the transaction, while its joint venture partner IAG International Pty Ltd will continue to hold 26%.

SBI GI is one the fastest growing large private insurer with a gross direct written premium of Rs 35 billion. It has wide offerings with a balanced product mix and multi-channel distribution that includes bancassurance, direct, brokerage and agency.

SBI share price opened the day up by 1.1%.

By the way, in our latest edition of the stock market podcast, Apurva Sheth, our lead Chartist and Editor of the premium newsletter, Profit Hunter Pro joins us to share his technical view on the massive stock market crash that we witnessed on Friday. He also talks about the stocks that could create value in such times. Listen in... visit SoundCloud, iTunes or Stitcher.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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