Markets sustain rally

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Strict debt fund rules on anvilFIIs sell shares worth Rs 910 cr

Mumbai, New Delhi, Oct 14: The Reserve Bank of India’s sustained moves to ensure adequate liquidity in the credit market and the rally in US equity markets, where the benchmark Standard & Poor’s 500 index notched up its biggest two-day gain since the Great Depression, has helped. While profit booking in the second half pared some of the day’s gains, the 30-share Sensex of the Bombay Stock Exchange gained 174.31 points, or 1.54%, to close at 11,483.40 points on Tuesday.

Central bank governor D Subbarao said call rates—the rates at which banks borrow from each other—had dipped to 8.75-9%, signalling liquidity had returned to the credit markets. He said the financial markets were under control. The bank cut the CRR by 150 basis points to release Rs 60,000 crore into the banking system last week and opened another Rs 20,000-crore liquidity window for banks to adjust their loans against mutual funds.

“We have reviewed the entire situation. The situation is quite comfortable,” Subbarao told reporters after meeting finance minister P Chidambaram in the afternoon. “We believe everything is under control. I cannot tell you what measures are going to come. We have done everything that needed to be done,” he added.

Late in the evening, Subbarao joined Chidambaram at a meeting with Prime Minister Manmohan Singh as prices in bond markets fell anticipating a cut in the statutory liquidity ratio from 25%. Banks have to invest the sum in specified government securities. The yield on the ten-year benchmark 8.24% paper climbed 15 basis points to 7.94%. After the meeting, reporters were told that a statement would be issued on Wednesday morning.

FIIs bought stocks after a long hiatus. According to the provisional figures provided by the BSE, FIIs were net buyers worth Rs 898.25 crore. Domestic institutional investors, however, were net sellers worth Rs 252.37 crore.

The rupee also staged a comeback, rising to 48.04 against the dollar—up 0.4%—while the cost of five-year benchmark interest rate swaps that corporates use to hedge against fluctuations in interest rates rose to 7.29% from 7.22% on Tuesday. Dealers say that investors were cautious after a sharp rebound this week on concerted action around the world to rescue the global financial sector. The broader S&P CNX Nifty of the NSE was up by 27.95 points, or 0.80%, ending at 3,518.65 points.