New Delhi, September 19
The BSE Sensex rallied strongly by 684 points to an almost three-year high cheering the US Federal Reserve move to unexpectedly continue with its money printing programme which will give some breathing space to struggling emerging economies like India.

US Federal Reserve chairman Ben Bernanke’s address was followed widely late last night and with the decision to keep the $85 billion bond buying programme every month unchanged, it boosted stocks and currencies across the world. It would mean that the easy liquidity would continue at least until December.

An indication of a possible tapering of the monetary stimulus by Bernanke had caused a severe crisis in emerging markets, including India, for the last two months due to capital outflows. This will also give some more room for a dovish monetary policy tomorrow for new RBI Governor Raghuram Rajan.

The rupee also got a boost and traded at 61.80 against the dollar, up over 150 paisa, when the stock markets closed for the day. The BSE Sensex closed at 20,646 points, up 684.48 points or 3.43%. It was the highest level for the index since November 10, 2010.

Rajan, who took over as RBI Governor earlier this month, rescheduled his much-anticipated first monetary policy statement by a few days to September 20, keeping in mind the two-day Fed meeting.

Analysts said the Fed decision had reduced the threat of immediate foreign outsource. Dipen Shah, Head- Private Client Group Research, Kotak Securities, said in a salute to Fed’s Taper Hold decision, global markets rose sharply. “There was relief among emerging markets as threat about immediate FII outflows receded. Indian markets also rose on reduced threats of foreign money as well as in anticipation of a favourable policy from the new RBI Governor”, he said.

He said that because of factors like reduced threat of immediate outflows, the recent appreciation in the rupee, reduced core inflation and continuing low growth, the RBI will not increase rates. “On the other hand, with the reduced pressure on rupee, there is expectation of a reversal of some of the measures taken by the RBI over the past 3-4 months to curb the currency depreciation”, he said.

Motilal Oswal, CMD, Motilal Oswal Financial Services said after the RBI policy announcement tomorrow, some of the completely beaten down sectors, investment related sectors and low-quality financials will start to rally.

Oswal said since the last policy review of the RBI at end-July 2013 economic data has continued to provide space for RBI to ease policy. Growth was lowest in four years and industrial production remained low. Thus, the RBI can withdraw fully or partially some of the extraordinary liquidity tightening it had done to support the rupee.