Rupee Strengthens, Sensex and Nifty Rally as Weak US Jobs Data Cools Rate Hike Fears

Indian stock markets and the rupee both started Friday on a strong footing. The rupee opened at 95.21 against the US dollar, 18 paise stronger than its previous close of 95.39. At the same time, the Sensex jumped nearly 480 points and the Nifty 50 climbed past the 24,300 level in early trade.

This positive mood had already been signalled before the market opened. Futures tracking the Nifty on the GIFT City exchange had risen 150 points to 24,414 in the early morning hours, hinting that domestic markets would open in the green.

A major reason behind this optimism came from outside India. Overnight in the United States, fresh employment data showed that job creation in June slowed down sharply, falling short of expectations by 57,000 jobs. On top of that, hiring figures for the two months before June were revised downward, suggesting the American economy is cooling faster than expected.

Weaker jobs numbers usually mean a country's central bank is less likely to raise interest rates, since rate hikes are typically used to control an overheating economy. Following this data, traders sharply cut their expectations of a rate increase by the US Federal Reserve in September, with the probability falling to around 53 per cent from nearly 75 per cent just a day earlier.

Lower US rate hike expectations tend to weaken the dollar and make emerging markets like India more attractive to investors, which helped explain the rupee's rise and the stock market's cheerful start.

Inside India, domestic institutional investors have also been playing a supportive role. They bought shares for the eighth session in a row on Thursday, helping the Sensex and Nifty rise by 1.3 per cent over the previous two trading sessions. However, foreign investors have been doing the opposite: they sold shares worth Rs 3.12 billion on Thursday alone, and have pulled out a record $29.46 billion from Indian equities so far this year.

Globally, the mood was mixed but leaned positive. Japan's Nikkei 225 index rose 0.74 per cent, even though it was still headed for a small weekly loss. In the US, however, the tech-heavy Nasdaq closed lower overnight, as investors processed the weak jobs data even while hoping it might keep interest rates lower for longer.

Overall, Friday's gains in Indian markets came from a mix of factors: a softer dollar, reduced worries about US rate hikes, steady buying by domestic investors, and easing crude oil prices, even as foreign investors continued pulling money out of Indian stocks.