While it should have been a week of heavy selling in the domestic stock markets, given the interest rate hike in the US for the first time in over a decade, the benchmark indices, instead, posted biggest weekly gains in more than two-months.

The markets had factored-in the US Federal Reserve rate hike and as a result there was no panic selling.

For the week ended 18 December, the BSE S&P Sensex rose 474 points or 1.90% to end at 25,519 points, while the 50-share Nifty index gained 151 points or 1.99% to close at 7,761 points.

As expected, the US central raised the interest rates by 25 basis points (bps) for the first time in nearly a decade at its two-day meeting on 15-16 December, bringing an end to speculation that persisted across the global markets over the past two years.

"After being under pressure for two consecutive weeks and falling over 5%, the Indian equity markets have staged a strong come back during the week only to come tumbling down on Friday​. The world and its market seem to have rejoiced after the Fed moved on expected lines," said Amar Ambani, Head of Research, IIFL.

Meanwhile, domestic markets were also partly underpinned by positive economic data releases earlier this week. The Index of Industrial Production (IIP) for October released last week showed that the industrial output surged 9.8% in the month, reaching its highest level since October 2010. A recovery in the rupee against the US dollar also supported the markets.

On the sectoral front, IT index came under selling pressure during early sessions of the week, as the US government proposed to double the fee on work permit visas offered to other countries. IT companies are among the top users of H-1B and L-1 visas.

Share prices of domestic IT major like Infosys and Tata Consultancy Services (TCS) witnessed a sell-off, as analyst raised concerns over the fee hike hitting their margins. Warning on Q3 earnings issued by TCS and Wipro in the wake of recent floods in Chennai also weighed on their stocks.

Another notable event for the markets this week is the ban imposed by the Supreme Court on sale on luxury diesel cars with over 2,000 cc engine capacity in Delhi till 31 March, 2016, in a bid to reduce pollution levels in the national capital city.

Following the ban, stock prices of Mahindra & Mahindra fell sharply, as its entire range of utility vehicles have more than 2,000 cc engine capacity. Responding to the SC ruling, Mahindra Group chairman Anand Mahindra tweeted that the company will comply with the order.

But the investor optimism seen in the four traded session of the week turned negative in the last trading day after the government sharply reduced its growth forecast for the current fiscal year, while presenting mid-year economic review.

The government slashed its India's GDP growth forecast to 7-7.5% in 2015-16 from a earlier estimate of 8.1-8.5%.

"The weather may be getting pleasant but the market tantrums seem to be on the upswing as Friday's sharp correction broke the winning streak of last four sessions. Despite recent correction, investors appear ready to bet even on counters that are fairly valued given the long-term growth potential of stable companies. Trend in global markets, movement of rupee against the dollar, and crude oil price will dictate near-term trend," said Ambani.

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