Fed's move moves the world markets!!

The latest booster dose by the US Federal Reserve, which increased liquidity in the system by lending $200 billion to financial institutions, is likely to energise the battered equity markets around the world, including India. The US markets were the first to respond, with the Dow Jones Industrial Average gaining 416 points, or nearly 4%. This represents the single biggest gain in the last 5 years!!

The Federal Reserve on Tuesday offered to lend up to $200 billion to cash-strapped financial institutions in exchange of mortgage-backed securities (MBS), as it struggles to stifle the ongoing crisis in credit markets. The Fed move comes against the backdrop of a deepening crisis in the US housing market, and a looming recession. Back home, analysts say the step is likely to soothe investor sentiment for the time being, but an uncertain global market outlook and weak technical indicators raise doubts about the sustainability of any rally.

On Tuesday, BSE’s 30-share Sensex ended at 16,123.15, up 199.43 points, or 1.25%, while the 50-share Nifty, of the NSE, closed at 4865.90, up 65.50 points, or 1.36%. The broader market also participated in the rally, with gainers outnumbering losers 2,110:605 on the BSE. All broad-market indices rose 2-4 %.

“Any rise should be considered as an opportunity to book profits for short-term traders, unless the Nifty closes above 5250 on a weekly closing basis,” said Viral Doshi, a technical and derivatives strategist. Analysts said unless any move by US Fed triggers fresh money flow into emerging market equities, including those in India, short-term investors could contemplate booking profits on further upside hereon. The US Fed is expected to cut benchmark interest rates by 75 basis points on March 18, a move that investors are hoping would trigger fresh flows into most emerging market equities.

Foreign funds extended their selling spree in Indian equities to Tuesday. According to provisional data on institutional trades, foreign funds were net sellers of Indian equities at Rs 539.24 crore, while domestic institutions were net buyers of Rs 303.36 crore of shares.

Elsewhere in Asia, markets ended higher with Japan’s Nikkei and Topix gaining roughly 1% each. Hong Kong’s Hang Seng rose 1.3% and Singapore’s Straits Index rose close to 1%. In India, shares of capital goods and real estate stocks, which were battered in recent sessions, rebounded on technical reasons and some value purchasing. “The rally in capital goods and real estate is more of a retracement after the fall. It is too early to say whether investors may flock back to these stocks,” Mr Doshi said. D

Deutsche Bank has maintained an underweight rating on the real estate sector, excluding DLF, citing slowdown in demand for residential property in proportion to the supply. The investment bank expects DLF to buck the gloomy trend in the sector because of the company’s lower exposure to residential properties. “A slowdown in residential demand in select markets due to poor affordability is evident from the decline in property registrations and mortgages. Given the supply ramp-up , this glut is expected to spread,” Deutsche Bank said in a strategy note.

Reliance IPO money refunded!!

With the Reliance Power IPO money being refunded to QIBs (Qualified Institutional Buyers) and non-institutional buyers on February 1, I expect the markets to rise in the coming week due to increased liquidity and the cheap levels the markets are at the moment. Additionally, global sentiments seem positive at the moment and with the U.S. markets closing in the green in yet another session on Friday, chances of the Indian market opening higher are pretty high on Monday!

I would like to advise those investors with a bit of a risk appetite to buy a Call option (Strike price 5500, expiry 28 Feb 2008) on Nifty (lot size: 50 Nifty). The call option was trading at a price of Rs. 170 - Rs. 180 on Friday, towards the close of trading. It is likely to go higher on monday on the back of psoitive global sentiments. Still, I expect the market to move higher because 1) Refund of the Reliance power IPO money has provided investors with a lot of cash, 2) FII buying could provide a boost to the market. Historically, the FIIs have made 20% of their annual investment in Feb and FIIs were back in the thick of action on Friday. 3) Global sentiments coupled with average to positive Q3 results should help the markets stage a rally now, and finally, 4) Sentiments remain positive ahead of the 2008 Budget and with the Fed cutting rates by another 50 bps, I strongly believe that RBI too will have to follow suit, albeit with a lower rate cut.

So while you are busy reading this latest entry and analysing/digesting what I've said, I'll sneak across and warm myself with a hot cup of coffee!! Anyone interested in 1??

N.B.; Take whatever profits you get, the market may surprise negatively in the near-term and a lot of these so-called support levels will be tested if the markets face a down-turn.. Every rally is a time to book profits; currently not the ideal time to buy! Hey, also invest in the Reliance Natural Resources Fund. I apologise for the delay in bringing across this mutual fund to your attention! Risk-avoiding people should look to invest in Mutual fund schemes!