$200 bn Fed lifeline may boost Indian markets

The surprise move by US Federal Reserve to lend up to $200 billion in treasury securities is likely to act as a booster for the Indian markets tomorrow. The bellwether Sensex rallied by 344 points from the day's low on Tuesday.

Buoyed by the Fed action, the US stocks rallied the most since January. The S&P 500 climbed 24.39 points, or 1.9 per cent to 1,297.76 at 10:13 am in New York. The Dow Jones Industrial Average added 238.86, or 2 per cent, to 11,979.01.

The Nasdaq Composite Index rose by 39.83 points, or 1.8 per cent to 2,209.17. Thirteen stocks gained against every one that fell on the New York Stock Exchange. The US stock futures rose following the Fed announcement, which came after the close of Indian markets.

With the key benchmark American indices reacting positively to the Fed action, the local markets can expect a strong rally tomorrow, according to analysts.

The Fed's move is intended to ease the gridlock in credit markets, which has cast its shadow on all global markets since late last year. The Fed plans to provide loans through auctions and increase swap lines with foreign central banks.

Early in the day, Sonia Gandhi's reported comments ruling out early elections coupled with US media speculation on a possible cut in rates by the Fed acted as a boost for the India markets.

The rise in key domestic indices was led by reality major DLF. The stock gained 10.11 per cent to close at Rs 749 on the Bombay Stock Exchange (BSE).

The benchmark Sensex rallied by 200 points or 1.25 per cent to close at 16,123 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) was up 65 points or 1.36 per cent at 4,865.

Key benchmark indices from United Kingdom, Germany and France rose between 0.50 and 1 per cent. The gains in Asian markets were led by Hang Seng, which was up 1.28 per cent. Among the others, Nikkei was up 1.01 per cent, Taiwan rose up by 0.99 per cent and Shanghai Composite gained 0.47 per cent.

According to Sanjay Sinha, chief investment officer SBI Mutual Fund, the domestic rally could expand a bit more if the market remains above the 16K mark.

He further added, "If one draws a parallel to the market crash of 2004 and 2006 where the benchmark indices fell by 30 per cent, the prevailing turbulence could continue for another 3-5 months in case there is no major bad news on the global front."

Domestic institutions including mutual funds made decent purchases in the market on Tuesday, while the foreign institutional investors (FIIs) pressed the sell button.

The provisional data provided by the stock exchanges suggests that local institutions brought shares worth Rs 303 crore and FIIs net sold to the extent of Rs 539.29 crore.

Umesh Soni, senior manager at Bank of Baroda Asset Management Company is of the view that markets would not be able to move above the 18K mark in the short-term as there was inadequate liquidity.

The realty index was the top sectoral gainer on the BSE on Tuesday. The index was up 6.76 per cent. The capital goods index was up by 5.39 per cent and the power Index rose by 5.11 per cent. All the three indices had witnessed a steep fall on Monday.

Larsen & Toubro recovered most of its Monday's lost ground. The stock was up 6.90 per cent at Rs 2,917. The other top Sensex gainers included ACC, up 5.67 per cent at Rs 810, Bajaj Auto, up 4.59 per cent at Rs 2,076, Ranbaxy Laboratories, up 4.62 per cent at Rs 453 and Reliance Industries, up 3.23 per cent at Rs 2,346.

The BSE small and mid-cap indices rose by 3.76 per cent and 3.36 per cent respectively. In order to increase liquidity in the market, the BSE revised the circuit filters of more than 1,000 stocks on Monday. The circuit limits of many stocks were revised to 10 per cent from the existing from 5 per cent.

The market breadth was strong, with 76.81 per cent or 2,110 stocks advancing stocks as against declines of 22.02 per cent or 605 stocks.