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Sensex 18k to 19k in four sessions
Four trading sessions that what it took the sensex to rally from 18k to 19k making it the fastest 1,000 point run it the history of the 21year old index. If you think of that as a milestone, consider this Over the last one month, the sensex gained 3,500 points. And during this period, four of its five all time highs were achieved. “Milestones are just a stone’s throw away,” muttered a derivatives strategist at a domestic brokerage.
The question is, what feeding the frenzy the answears at 19k remain what it was at 18k. Unabated buying interest by foreign fund managers because returns from India remain among the best in the world and expections that in the future the Indian economy and corportes will continue to do well . In any case , these are variable that don’t change over four trading sessions. Which is why, FIIs have pumped $7 billion into Indian stocks in less than a month.
The rush for Indian paper started on September 19 after Ben Bernake, chief of the US federal Reserve, cut key interest rates in an attempt to save the world’s largest economy from dipping into a recession. Call it the Ben(ji) efffect if you will!
He cut interest rates for a simple reason the sub prime loans are extended to people with low income and hold the potential for default. The gamble American lending institutions took was that with a certain degree of controls, they wouldn’t default. But high interest rates in the US started pushing up the numbers of people who couldn’t repay the loans.
As things turned out, American banks had a huge exposure to this segment of borrowers and many started tottering under the weight of defaults. The Probblem had reached proportions that threatended to derail the American economy. Bernanke reckoned that if he cut interest rates, it would be easier for people to service their loans and the financial services sector could ride out the storm.
But investors in the stock market saw it differently. It would be some time before the American financial system recovered from the mess it had gotten itself into. In any case, with lower interest rates, returns on their investments would go down.