MARKETS SOAR – ITS ALL ABOUT SENTIMENTS!

The markets finally found the trigger that it was looking for and the positive news, that too about rate cut in USA helped the world markets bounce back. Sounds kind of weird, a rate cut in USA which does not affect the common man in Jhumritalayya or even on the non descript MG Road’s anywhere in India, has today become a reason to rejoice for! Now that’s globalization, it’s gone much beyond Pepsi and Ariel.

While most of us Indians slept off the night, dreaming of a bull market like the days in January, Bernanke announced a 0.75% rate cut in the US Federal Reserve rates. Though it was much below the one percentage point that the markets had expected, nevertheless, it was a welcome move. The Indian bourses were more than enthused by this news and the BSE opened the day for trading 500 points up, a complete reversal of trend from the 1000 points fall of Monday.

What this clearly indicates is that markets are purely driven by sentiments, the only thing that matters is the perception of the investors or the “moods”. All the fundamental signs are the same as that on Monday, the fall in industrial production remains and inflation soars. If these were the points of concern on Monday, they still continue to remain today. The only thing that has changed is the lifting of the moods, with the Fed rates cut, and the Lehman Brothers and Goldman Sachs group also posting better than expected earnings. Indian companies paying a good advance tax for Q4 also helped.

Yesterday's rate cut brought the benchmark overnight interbank lending rate in USA to 2.25%.Though this rate cut was lesser than the one percent rate cut expected, this coupled with the January 22^nd rate cut of 0.75% are the largest reductions in the federal funds rate since it became the chief tool of monetary policy about two decades ago. These rate cuts along with the slew of measures announced last week are expected to ease the liquidity pressures, hopefully spur economic growth and reduce the risks of recession. Now that is what Bernanke hopes will happen and this is what rest of the world also hopes for. All want to ward off a serious recession in USA and the coming six months would be indicative of the efficiency of these measures announced.

The fed rate cut quickly triggered announcements from commercial banks that they were cutting their prime lending rate to 5.25% from 6%, where it was before the Fed meeting. This rate is the benchmark for millions of business and consumer loans.

For now, the moods have been set right, the economic factors and worries continue. For the Indian markets, the Q4 results will now indicate the way in which the markets will move. The economic industrial figures for the month of February will be announced in April and that could once again be a cause for concern as the slowdown is expected to continue. Inflation will continue to remain a sore point.

Right now, from the moods on Dalal Street, it is clear that the marketmen feel that the worst is over. From next week, the market will be sobered and surely, it will be quite a while before the Sensex once again scorches ahead to the 18k mark.

Today’s rise of the indices should certainly put the tap on the pessimists who have been predicting doomsday, saying that the Indian markets have entered into a prolonged bear phase. This rise reiterates the fact that the Indian markets do have the basic resilience and there are still buyers at ever fall, no one is selling and taking off. For now, Mr.Bernanke, take a bow!