Indian markets might rally tomorrow amidst global credit wobbles

New Delhi, Aug 19 (UNI) Last week saw the most volatile period in the equity market around the world and central bank interventions of the likes one has not seen since the September 11 attacks with pumping in of more then 350 billion dollars in liquidity globally.

This was done amidst investor fears of a credit crunch with the inability of good and bad borrowers to access funds in the debt capital markets.

The week saw an exodus of funds from the emerging market economies as the appetite for risk taking lessened and investors started pulling out of such markets and investing in safer options like US treasury bills and bonds, which had its best run since October 1987.

There was no Friday sell in US this week and after seven sessions the American markets went up although they did finish the week slightly lower. The Dow ended the day 233 points higher 13,079 and the Nasdaq 54 points up to end at 2,505 that was the biggest one day percentage gain in a year.

This rally was spurred by a pre-market surprise. One hour before the opening bell the Federal Reserve announced that it was cutting the discount rates by half a percentage point.

Discount rate is how much the Fed charges banks to borrow its money and many think it could be a pre-cursor to a cut in the Fed's fund rates in mid-September, which would effect credit card and mortgage interest rates. Financial sector with Citi and JP Morgan Chase led the Dow higher even the beleaguered Countrywide Financial contributing to it.

The Fed news also helped brush off a weaker then expected consumer sentiment report which came in five points below expected level and the lowest in a year.

Meantime oil prices closed about 72 dollar a barrel in New York trading, about a dollar higher on continued reports that Hurricane Dean was coming down on the oil and gas producing region of New Mexico. Companies are already evacuating workers there.

Indian market saw some recovery on Friday ending the week at around five per cent losses in a weekly basis. The break in the global cues came after the Fed announcement on Friday when the Indian markets had already shut.

Tomorrow morning should see a gap-up opening in the stock exchanges with a rally of around 400-500 points as global markets did very well on Friday night. Experts say that the markets were looking for some confidence boosting measures and the Fed decision is not a concrete measure to alleviate the US problem. However, the jury is still out if this means the end of agony for global markets or will the volatility still continue.

The large cap stocks which saw short coverings on Friday should give a bounce to the market and ensure that the markets stay on a green. However, the question is about the durability and sustainability of any rally that might take place.

The central bank in US will have to decide very soon if the current crisis is affecting the broader economy and the need to cut rates further, which will have a domino effect on central banks around the world who would otherwise prefer to contain inflation.

This will have implications around the world for the equities market, global growth story and asset prices.

UNI