Japan rate cut boosts Sensex

Mumbai: The equity markets bounced back on Friday and posted their first weekly gains in this year supported by a strong rally in global stocks after the Bank of Japan (BoJ) surprised investors by slashing its benchmark interest rate below zero to stimulate its economy.

A rally in global crude oil prices, further stimulus measures announced by China’s central bank and a recovery in Indian rupee against the US dollar also helped the markets to maintain their winning momentum.

The Sensex climbed 401.12 points to end the day at 24,870.69 while the Nifty ended the day at 7,563.55, gaining 138.90 points.  

BoJ’s decision, according to market participants, is expected to benefit Indian stock markets in the near term. “This will lead to risk on trade in global markets in the near term. Riskier assets like equities will be a major beneficiary,” said Gopal Agrawal, chief investment officer, Mirae Asset Global.

While the measures announced by BoJ cannot match the scale of US Fed’s 2008 stimulus programme, experts believe the negative rate regime in Japan would trigger the Yen carry trade.

The Yen carry trade means an investor borrowing in yen to invest in other asset classes like equities, bonds or gold. If the yen stays stable or doesn’t appreciate, the investors would benefit from the return generated from the asset classes. “Since the Yen is likely to weaken further, investors would benefit from currency depreciation as well as higher return from equities,” he added.

According to Ambareesh Baliga, a senior research analyst, the BoJ’s move would help India attract both portfolio investment and FDI. “Our infrastructure sector will be a major beneficiary.”