Global markets appear to have made a full circle post Ben Bernanke’s surprise announcement in so far as stimulus was concerned with markets from the US to Europe being on fire.

However, as far as India is concerned, the spotlight will turn towards what the new RBI Governor Raghuram Rajan would announce tomorrow when the new policy review is due.

Bernanke's announcement

The global markets gave a thumbs-up to Ben Bernanke’s announcement last night that he would wait for proof of solid economic growth before any winding down of the bond buying programme of $85 billion a month is initiated. 

The impact of the announcement has been felt globally with Dow Jones of the US, the Asian markets, the BSE Sensex and the Nifty and the European markets all rallying, probably relieved that the markets would not witness any sell-off deluge.

While the Dow Jones closed with a gain of about 147 points yesterday and Nasdaq was up by 38 points, in Asia, Japanese Nikkei, Singapore Straits Times and the Hang Seng all gained massively today.

Major European markets, which have just opened, also are in the green. In India, while the BSE Sensex was up by 655 points and hovering around 20,600 points, the NSE Nifty gained more than 200 points to 6,100+ level.

Breather to Indian markets

The Indian markets would benefit both directly and indirectly from the stance taken by the Federal Reserve chief, whose term will end in the next few months.

The fear that FIIs would resort to a selling spree will not happen at least in the immediate future and this could give a breather to the Indian markets.

Rupee appreciation

The Indian rupee also witnessed a sharp appreciation today to around Rs 61.80 level against the greenback. But the larger question is how long will the fortunes of the Indian markets be tied to the US stimulus continuation and the availability of easy money and when the local economic reality would come to occupy a centre-stage.

RBI policy review

This brings to focus the action the RBI Governor would take when he unveils the new policy tomorrow.

Already analysts are speculating as to whether stabilising rupee and keeping inflation under check would take priority over easing interest rates. The Indian rupee has made a smart recovery from a low of Rs 68.80 in late August to today’s level of Rs 61.80/US dollar. 

High inflation

But what caused concern was the stubbornly high inflation as highlighted by the prices of onion that were ruling at around Rs 70/kg. In such a scenario, will the new RBI Governor take the plunge and set in motion a benign interest rate regime, however small the step is, is a moot question.

Bank Nifty surges

However, this has not deterred the investors posing faith in rate reduction if the rally witnessed by the CNX Bank Nifty is any indication. All the ten constituents of the NSE Bank Nifty have made significant gains with the bank index itself gaining about 730 points.

In terms of value, SBI was the biggest gainer, up by Rs 134.60 to Rs 1,808.25. In terms of percentage, YES Bank gained the most as the stock jumped by 23.67 per cent or by Rs 74.75 to Rs 390.60. Punjab National Bank was up by Rs 49.65 at Rs 558.80, BoB gained Rs 46.15 at Rs 576.75, Axis Bank rallied to Rs 1,160.10, a gain of Rs 80.40, ICICI Bank jumped to Rs 1,039.35, up by Rs 66.25 and Kotak Mahindra Bank gained Rs 56.15 to Rs 771.

But what probably would decide the course of the Indian markets in the near term would be, apart from the RBI Governor’s announcement tomorrow, the corporate results for the quarter ending September 30 that would start flowing in another three weeks.

Ben Bernanke has definitely given a breather but the future of the market would depend on economic recovery rather than on easy money.

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