Date:24/01/2008 URL: http://www.thehindu.com/2008/01/24/stories/2008012458150100.htm

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Domestic equity market recovers

Oommen A. Ninan

Seven-day losing streak ends; fears of recession in U.S. still haunt global markets

Mumbai: Ending the seven-day losing streak, the domestic equity market on Wednesday regained 864 points, while the global stock markets are still haunted by fears of a recession in the United States. The emerging markets, especially the Asian markets, are worried that a recession could erode the demand for exports.

Except Taiwan all Asian markets stabilised, further supporting the Indian markets.

It was again the U.S. Federal Reserve which — in an attempt to rescue not just the country’s economy but also the global markets by cutting the interest rates by 75 basis points — boosted the sentiment, which was at its lowest ebb in recent times.

On the Indian bourses, trading was volatile throughout the day. It opened with a spurt but immediately pared gains. Supported by firm Asian markets, Indian stocks firmed up again in the mid-morning session and recorded the highest ever intra-day gain of 1,267.17 points.

All key sectoral indices such as realty, metal, power and oil and gas too bounced back, registering handsome gains.

Havoc by margin calls

In the last two days, margin calls too had created havoc on the Indian bourses, causing a steep decline in share prices which was initially triggered by a setback in global financial markets and selling by Foreign Institutional Investors.

A margin (money) call is triggered when shares an investor bought with borrowed money decrease in value. If the investor is not able to put up an additional margin, the broker-financer will sell the shares.

This also pulled down the share value further on the Indian stock markets. The BSE sensex suffered a sharp loss of 2,284 points in the first two days of the week.

Globally, investors welcomed the surprise 75 basis points interest rate cut by the Federal Reserve on Tuesday evening. However, European markets were lower at midday and investors feared a fall on the U.S. stock market when it opened on Wednesday, as U.S. stock index futures suggested a negative trend on Wall Street.

In India, investors are looking forward to a statement by Reserve Bank Governor Y.V. Reddy on the U.S. recession and its impact on India when he announces the review of the annual policy.