Dovish Bernanke may cheer stocks

US Federal Reserve Chairman Ben Bernanke’s comments that there is no ‘preset’ timetable for rolling back the central bank's third round of monthly bond purchases, known as Quantitative Easing QE3, might cheer Indian stocks on Thursday. He expects to begin scaling back of QE3 later this year, depending on the economic outlook.

US stocks rose, cheering the Fed chief’s statements, while the dollar weakened. Brokers expect the latest comments to improve sentiment in emerging markets.

“Markets would take it positively as there are no surprises here. This is in line with what the market expectation has been,” said Nirmal Jain, Chairman of IIFL.

Bernanke said QE3 could be reduced more quickly or expanded as economic conditions warrant. The Fed chairman’s comments on the bond purchases programme have been the biggest influence on the global financial markets in the last couple of months. Bernanke’s remark in June that the Fed would possibly slow down its bond purchases by the end of the year dragged down stocks after foreign institutional outflows from emerging markets including India.

Last week, he reassured markets the Fed would start rolling back QE3 only after the economy and the job market improves. That helped markets bounce back. Foreign institutional outflows also receded after the comment.

“Foreign flows would not be negatively impacted this time around. I think emerging markets would be normal again,” said Jain.

“They have given a time-line this time, which is exactly one year. So we do not expect to see any major pull-out by the foreign investors for now,” said S P Tulsian, independent financial analyst.