The Telegraph
Since 1st March, 1999
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Sensex 16000 signal to Left

Mumbai, Sept. 19: Ben Bernanke has greater influence over the Indian stock markets than Prakash Karat.

The sensex today burst through the 16000-barrier after the Bernanke-headed US Federal Reserve cut a key benchmark interest rate.

This is the second time in less than a month that the US Federal Reserve governor has forced the Indian market to walk his talk rather than the Left’s.

The Fed cut the US overnight rate — called the federal funds rate — to 4.75 per cent, its lowest level since May last year.

Investors were euphoric over today’s rally: after all, it put another Rs 1,53,002 crore of notional wealth into their wallets.

Three factors were responsible for gunning the turbochargers in India’s bellwether index: first, the rate cut in the US raised the hope that the banking industry here would also trim loans and ignite a wave of consumer buying.

Second, the anticipation that foreign investors would shovel more cash into emerging markets like India. Third, that industry would grow at a robust pace after the slight stutter in August.

Bankers, however, have discounted the possibility of an immediate rate cut, which will disappoint home loan borrowers.

“My guess is that the RBI will follow a wait-and-watch policy,” said D.K. Joshi, director and principal economist at Crisil.

Most pundits expect fresh funds to flow from abroad. Foreign institutional investors have pumped in $9.46 billion into Indian equities this year and the bet is that they will put in more cash now when emerging markets promise better returns.

Ambareesh Baliga of Karvy Stockbroking, however, advised caution. “One must not be euphoric about this rally. It is time for people to book some profits.”

Just over a month ago, Karat had said the honeymoon with the UPA government was over but the marriage would continue. The growing strains over the Indo-US nuclear agreement between the Left and the Congress had raised the spooky prospect of an early election.

Around the same time — August 17 — Bernanke stunned the world markets by slashing the discount rate by half a percentage point to 5.75 per cent to soothe concerns over a widening crisis linked to home loans to customers with poor credit histories.

The discount rate is what the Fed charges banks for loans.

On Monday, August 20, the Indian markets rebounded by 286 points, taking their cue from Bernanke’s action and choosing to ignore Karat’s rhetoric.

The markets did it again on Wednesday.

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