Fed lifts Sensex, but spooks US, Europe

Asian markets, including India, on Wednesday cheered the US Federal Reserve’s announcement to keep interest rates near zero for at least two more years. But, the US stock markets once again revived fears of a global market crash, opening with steep drops as European markets also reversed earlier gains by diving deep into the red.

Within an hour of opening, the Dow Jones had dropped 400 points, around 3.5 per cent, while the Nasdaq and the S&P 500 were both down more than 4 per cent. Earlier, the Bombay Stock Exchange (BSE) benchmark Sensex regained the 17,000 mark, snapping a six-day losing streak. The 30-stock index of Asia’s oldest stock bourse, which opened nearly 387 points higher, ended up 1.62 per cent, or 272.60 points, at 17,130.51. At the National Stock Exchange (NSE), the 50-stock Nifty index gained 1.74 per cent, or 88.15 points, to close at 5,161.

NSE’s volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, declined 17 per cent to 28.95.

Wednesday’s relief rally has not yet convinced investors to buy stocks and the sentiment still remains fragile as fears of double-dip recession in the US and a worsening euro zone debt crisis continue to weigh, experts say. “At the moment, it’s just a bounce-back. Those who were short are booking profits,” said Rakesh Arora, managing director and head of research, India, Macquarie Capital Securities. “There are still a lot of uncertainties. Investors will look for signals like China and India reversing their tightening cycle for regaining confidence,” he added.

Foreign institutional investors, which had sold Indian shares worth Rs 4,680 crore ($1.04 billion) in the last three sessions, turned buyers with purchases of RBI issues draft norms to use internal models for credit risk charge152.87 crore, provisional data on the BSE website showed. Domestic Institutional Investors were also buyers of shares to the tune of Rs 289.95 crore.

“There is still nervousness in the markets. And since events are still unfolding in terms of action plans from different regulators, one cannot say with certainty whether the recovery will continue or not,” said Jignesh Shah, executive director at Sarasin-Alpen (India), a unit of the Swiss wealth manager controlled by Rabobank. “Once the uncertainties recede and the negative news flow stops creating incremental nervousness, market players will start looking at valuations.” At Wednesday’s close, the Sensex traded at 14.11 times its estimated earnings for this financial year, the lowest since May 2009.

All the sectoral indices on the BSE, except oil & gas and FMCG, ended with gains. The BSE Auto index advanced the most, with 4.17 per cent gains. Earlier, most Asian markets ended higher. Japan’s Nikkei 225 gained 1.05 per cent, Hong Kong’s Hang Seng added 2.34 per cent, Taiwan’s Taiex advanced 3.25 per cent and China’s Shanghai Composite Index climbed 0.91 per cent.