Sensex up 473 pts as markets bet on ECB intervention

Written by fe Bureau | Mumbai | Updated: Sep 28 2011, 06:54am hrs
Anaemic global growth and sovereign debt woes in the euro zone notwithstanding, equities roared back into rally mode on Tuesday. Investors took hope from euro zone authorities who hinted that the European Central Bank may resume bond purchases soon. Asian stocks rebounded from their lowest levels since May 2010, with the MSCI Asia Pacific Index soaring 4%, posting its biggest gain since April 2009. The buoyancy in Asian equities followed the smart rise in the S&Ps 500 Index, which had jumped 2.3% on Monday.

Mirroring the sentiment, the Sensex posted its biggest gain in nearly a month, climbing 472.93 points or 2.95% to 16,524.03, after giving up over 6% in the previous four sessions. Since the start of the year, the Sensex has shed more than 19%, with the euro-zone turmoil yet to be resolved and domestic growth slowing down.

Bloomberg quoted US treasury secretary Timothy Geithner predicting European governments will step up their response to their regions debt crisis after a chiding from counterparts around the world. Europes crisis is starting to hurt growth everywhere, in countries as far away as China, Brazil, India and Korea. And they heard the same message from us they heard from everybody else, which is its time to move, Geithner told a television channel.

Geithners remarks maintain pressure on Europe ahead of finance ministers and central banks gatherings next week and a decision on a loan to Greece to help avoid default.

Speculation that rescue efforts will be strengthened spurred a rally in stocks even after Dutch and Finnish officials said they wont boost commitments to a euro area bailout fund, Bloomberg reported.

Meanwhile, foreign institutional investors (FII) who sold nearly $2 billion worth of equities in August alone are understood to have bought stocks in small quantities on Tuesday. Although India continues to trade at a premium to its peers in the region, the premium has narrowed considerably. At current levels of 16,524, the Sensex trades at a multiple of approximately 15 times estimated 2011-12 earnings.

However, the fairly steep fall in the prices of key commodities such as copper and the lower price of crude oil at $105.63 per barrel boosted sentiment. Investors believe that lower commodity prices might soon help bring inflation under control, allowing the countrys central bank to stop tightening monetary policy further. Despite global woes, developing nations like India will continue to grow at 6%-plus in the medium term even if the rich world posts sub-2% growth, said Bhupinder Sethi, co-head (equities), Tata Asset Management.

Key indices in Asia-Pacific ended in the green on Tuesday, with the Hang Seng and Jakarta Composite rising more than 4% each. Koreas Kospi gained the most at 5.02%. Dow Futures were trading up 180 points at 11,148 at 5.40 pm IST, while the three major European indices, the FTSE, Dax and the CAC, were up over 2%. The yield on 10-year US Treasuries were ruling 7 basis points higher at 1.975% compared with the previous days closing of 1.901%.

Cash turnover at NSE on Tuesday was Rs 10,773 crore, while the six-monthly daily average is Rs 11,700 crore. Turnover in derivatives was Rs 1.66 lakh crore and the daily average for the past six months is Rs 1.27 crore. Reliance Industries, the largest company by market value, surged 5%, while Tata Consultancy Services jumped 4.4%. Tata Motors gained 6.1%.