Markets take govt146;s word, bounce back

Money Moves Govt assurance to inject more cash to ease the liquidity problem worked.

India also joined other nations to salvage the battered financial markets on Monday, giving temporary relief to investors hit by a selling avalanche in the last few days. After plunging nearly 2,000 points, or 16 per cent, to record its worst weekly performance in 18 years last week, Dalal Street staged a recovery of 7.42 per cent as global markets bounced back and the government assured steps to inject more cash to ease the liquidity problem.

In a statement before the market opened up by 495 points breaking a five-day streak of fall, finance minister P Chidambaram promised more measures to infuse liquidity and advised investors not to act in haste or panic. 8220;We will respond swiftly according to the needs of the situation. We are working on measures that will infuse liquidity, make credit intermediation smoother and increase the confidence of depositors and investors. We hope to be able to announce them shortly,8221; Chidambaram said.

As a result, the domestic market showed no sign of weakness during the day and gained consistently almost throughout the day on firm global equities. Led by ICICI Bank, the BSE Sensex recovered 781 points to close at 11,309.09. It had tanked almost 50 per cent from its all-time peak in January this year. 8220;Indian markets also took cues from Asian markets which opened with a positive gap, as globally there are expectation of coordinated action plan from central banks and governments in G7 countries,8221; said Amitabh Chakraborty, President equity, Religare Securities Ltd.

Investors also took note of RBI governor Duvvuri Subbarao8217;s statement that Indian banking system was stable and sound and there was no reason for any anxiety or uncertainty. 8220;We are monitoring the situation on a continuous basis, and stand ready to take appropriate effective and swift action,8221; he had said.

On the other hand, world stocks jumped from last week8217;s four-year low after policymakers around the world took new and drastic steps to rescue banks and prevent the global economy from sinking into recession. The new steps include guaranteeing bank deposits and taking stakes in banks. The UK government injected 37 billion pounds buying into leading UK banks while Australia and New Zealand guaranteed all bank deposits. European central banks also said they would lend out as much US dollar liquidity as commercial banks need in a further joint bid to tame money market tensions.

Hong Kong8217;s Hang Seng Index, which tumbled more than 7 per cent Friday, soared 10.24 per cent. Australia rose 5.6 per cent and Singapore 6.6 per centwhile South Korean and Chinese benchmarks added around 3.7 per cent. In Europe, Germany was up by over 6 per cent and Britain by over 4 per cent. Wall Street also made a strong opening.

Said Alex Mathew, head of research, Geojit Securities, 8220;the reassurance from finance minister P Chidambaram regarding financial stability of the country and banks actually triggered huge short covering in banking stocks especially the worst-hit counter ICICI Bank. The markets didn8217;t show any kind of weakness during the day.8221;

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The banking sector index Bankex was the major gainer among the sectoral indices on the BSE, with ICICI Bank surging close to 17 per cent. It rose as much as 25 per cent earlier, helped by the finance minister8217;s comments.

However, a section of analysts feels the problems in the market are far from over. India Infoline said it was not convinced that the correction in India8217;s markets had ended and advised investors to stay on the sidelines till global markets stabilised.