RBI measures to improve liquidity may lift market

More measures announced by the Reserve Bank of India (RBI) to shield the Indian economy from the global economic slowdown may lift the market from a recent steep fall. But stepping up of sales by foreign funds in the last two days may weigh on the sentiments. On the flip side, gains in Asian markets may support the domestic bourses. Asian markets rose even as there was no concrete move at a meeting of the G20 countries on Friday 14 November-Saturday-15 November 2008 to avert a looming global recession.

RBI on Saturday, 15 November 2008, announced measures to improve money market liquidity and help exporters. The measures include extension of a special repurchase facility to provide liquidity for mutual funds and non-banking finance companies till March 2009, increase in the limit on export credit refinance available to banks, allowing housing finance companies to raise funds through short-term overseas borrowings, reduction in provisioning on standard assets of banks to a uniform level of 0.4%, and reduction in risk weights for banks on commercial real estate and on unrated claims on corporates.

The central bank also said it would consider proposals from local firms to buy back foreign currency convertible bonds early.

Foreign funds have stepped up selling on the bourses. As per provisional data, foreign institutional investors (FIIs) dumped stocks worth a net Rs 811.52 crore on Friday, 14 November 2008. On Wednesday, 12 November 2008, FIIs had pressed sales worth a net Rs 615.10 crore, much higher than Rs 266.50 crore on the previous trading session. The market was closed on Thursday, 13 November 2008, for a public holiday.

Political uncertainty ahead of state elections, uncertainty about a US Treasury plan to forgo buying bad mortgage-related investments to buy stakes in US lenders and caution ahead of a meeting of G20 political leaders, pulled the market sharply lower in the past three trading sessions. The BSE Sensex has declined 1150.74 points or 10.92% to 9,385.42 on Friday, 14 November 2008, from 10536.16 on 10 November 2008.

Stocks were mixed in Asia. The Nikkei average rose 1.2% in thin trade as some investors rushed in to buy following an initial sell-off after data showed Japan's economy was in recession. Key benchmark indices in Hong Kong, South Koera, Singapore, Taiwan and China were up by between 0.23% to 1.3%.

The G20 political leaders agreed Saturday, 15 November 2008, to a host of fiscal and monetary steps to rescue the global economy but it was left to individual governments to tailor their response to their particular circumstances and troubled industries.