US rate cut lifts Indian equities amid fluctuations


New Delhi : A major Indian share market index moved up 5.17 percent Wednesday amid fluctuation and profit-taking at every rise, after the US Federal Reserve cut interests to cushion the crisis rocking the global financial system.

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Much to the cheer of investors, the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) closed Wednesday at 17,594.07 points, to register a gain of 5.17 percent, or 864.13 points, over the previous day’s close at 16,729.94 points.

The key index opened on a strong note at 17,415.26 points with a gain of 685.32 points over the previous close but soon declined to the day’s low of 16,951.03 points as punters sought to book profits.

The index then started to rise again, with minor drops at successive intervals, and shot up to the day’s high of 17,997.11 points, to log an impressive margin of 1,267.17 points over the previous day’s close.

But the gains could not be sustained because of the lingering uncertainty in the financial world over possible recession in the US, profit booking to cash in on the notional gains and the resistance at higher levels.

“The market was bound to bounce back – and one of the reasons was the US rate cut. We are in for a long-term bull run and will recover substantially within 3-6 months,” said Nigam Pandya, an independent market analyst.

“After the 5,000-point fall, the minimum rise now still appears to be attractive for small investors. I feel the rise in the markets will be sustained over a period of time,” added Pankaj Desai, a financial consultant in Mumbai.

The breadth of the market was also positive, with 194 ‘A’ group shares – among the most actively traded in the Mumbai bourse after the 30 shares that comprise the Sensex basket – gaining ground, and only 23 ending lower.

While mid-cap stocks outperformed the Sensex with a gain of 8.15 percent, the BSE small-cap index was up 3.96 percent.

Notably, all the 13 sector-specific indices of the BSE ended Wednesday in the positive territory, with that for realty up 11.44 percent, followed by 9.81 percent for power and 8.73 percent for the oil and gas.

Indices for metal stocks (up 6.85 percent), state-run units (6.77 percent), banking (5.64 percent), information technology (5.45 percent and consumer durables (5.23 percent) also gained more than the Sensex.

Among the 30 Sensex stocks, only Bharti Airtel ended with losses, down some 0.30 percent at Rs.846.75, while the 29 others that gained ground were led by Reliance Energy, up 15.94 percent at Rs.1,989.95.

Other noteworthy gainers included NTPC (13.73 percent), Satyam Computers (10.84 percent), Tata Consultancy (8.48 percent), Reliance Industries (8.35 percent), Bharat Heavy Electricals (8.09 percent) and State Bank of India (7.64 percent).

The gain came after the barometer index plummeted Monday and Tuesday by 1,408.35 points, or 7.41 percent, and 875.41 points, or 4.97 percent, on account of panic selling, in line with the movements across the globe from Tokyo to New York.

The authorities at the Mumbai bourse had to suspend trading for an hour Tuesday, as Sensex hit the lower circuit breaker, before a pep talk by Finance Minister P. Chidambaram on economic fundamentals helped ease the losses.

Investors had lost $170 billion Monday in terms of market capitalisation, with another $95 billion shaved off the valuations the next day as scrip after scrip lost ground on account of panic selling.

Stung by fears of a possible recession, The US Federal Reserve had delivered a surprise interest rate cut of 75 basis points early Tuesday, which shored up market confidence across the globe, including India.

Leading industry lobbies like the Associated Chambers of Commerce (Assocham) and the Confederation of Indian Industry (CII) said the central bank must consider a reduction in interest rates to help the markets and investor confidence.

“Adequate liquidity infusion at appropriate time in the time of crisis is a key element to avoiding major turbulences as witnessed in the financial markets in last two days,” Assocham president Venugopal N. Dhoot said.

“With inflation under control and hovering around three percent, it is the right time for RBI (Reserve Bank of India) to cut repurchase (repo) and reverse repo rates,” CII added in a statement Wednesday.

“Reducing interest rates would go a long way in boosting demand and investments. It would also reduce operating costs of exporting small and medium enterprises, that have been facing decline in profit margins due to an appreciating rupee.”