Mumbai: The Bombay Stock Exchange’s benchmark index Sensex rose 550 points, or 5.6%, to close above the psychologically important 10,000 level fuelled by the Reserve Bank of India’s weekend policy measures to ease the liquidity crisis and Prime Minister Manmohan Singh’s reassurance to company leaders that his government would do the right thing by the economy.
The National Stock Exchange’s broader index Nifty too closed above the 3,000 level, gaining around 5.5%.
Across Asia, key markets were up significantly, with India leading the gains, while the region’s largest market, Japan, remained closed on account of a local holiday.
US markets opened flat and at 9.10pm India time, the Dow Jones Industrial Average was at 9,340.78, up 0.17%.
On Saturday, the central bank had announced cuts in the cash reserve ratio, which defines the proportion of deposits banks must keep with RBI, the statutory liquidity ratio (SLR), or the level of cash banks must invest in government bonds and the policy rate, or the rate at which it lends to banks.
Domestic and foreign brokers say the rise can be attributed to market regulator Securities and Exchange Board of India or Sebi’s decision to extend the tenure for domestic stock lending and borrowing, and foreign institutional investors (FIIs) refraining from stock lending outside India.
Analysts say that such loaned stocks could have been used by investors to short stocks—or bet that their prices will fall.
The equity rally was accompanied by one by the rupee, which closed at 48.64, up 1.7%, from its Friday’s close of 49.45 to the dollar. So far this year, the rupee has lost at least 19% making it the worst performing currency after the South Korean won. It had fallen to as low as 50.29 on 27 October, largely due to massive selling, particularly by FIIs who have withdrawn at least $12.78 billion from the markets this year.
The next two days will be critical, say fund managers, as the United States elects a new president—an important event for global markets, based on which, broader global sentiments will shape up.
Still, some fund managers and analysts expect the Sensex to retest its recent bottom once the ongoing relief-rally runs out of steam.
“I don’t think it’s a massive change in direction, more a case of a little more confidence going forward in massively oversold stocks and...global organized attempts to deal with the issues,” says Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong.
Another expert called for “fiscal policy measures”.
“A round of expansionary fiscal policies is needed for tangible real effects,” wrote Paul Sheard, formerly global chief economist at the erstwhile investment bank Lehman Brothers and currently with Barclays Capital, in his latest report.
India’s bond market remained largely neutral after RBI’s intervention, largely because the interest rate cut was accompanied by a reduction in SLR. Following the reduction in SLR by 1 percentage point to 24%, the demand for government bonds fell.
The finance ministry said it would auction Rs10,000 crore of government paper on 7 November, further pushing down demand for already available bonds.
Anup Roy of Mint, Bloomberg and AP contributed to this story.