Indian Stocks Rally: US Dollar Weakness Fuels Gains

Indian equity benchmarks concluded Thursday with a significant gain, snapping a consecutive week of declines. The advance was bolstered by a weakening US dollar, which fell to its lowest point in three months, and a cooling of US long bond yields.

The Nifty and Sensex indices both saw substantial increases, with midcap and smallcap stocks also participating in the rally. Market observers attributed the positive trend to US Federal Reserve measures aimed at controlling long-term bond yields, which subsequently weakened the dollar and benefited emerging markets.

However, the Indian bond market experienced upward pressure. The 10-year benchmark government bond yield climbed five basis points following the release of monetary policy meeting minutes. These minutes suggested a greater readiness by the rate-setting panel to increase interest rates if inflation risks, particularly from food and fuel costs, materialize.

Despite these domestic yield concerns, foreign portfolio investors were net sellers, while domestic institutions were substantial buyers. The rupee remained relatively stable, influenced by competing factors of a weaker dollar, central bank intervention, and high crude oil prices. Crude oil prices themselves saw an increase, influenced by geopolitical tensions involving Iran.