>KARVY BAZAAR BAATEIN

From 30 March'09 to 5 April'09

Cautious optimism in play…

The markets across the globe cheered last week as the Obama administration announced a detailed bank rescue plan to buy US$1 trillion worth of toxic assets from the country’s ailing fi nancial institutions. Moreover, a stream of better-than-expected economic indicators emanated from the US, raising hopes of an early global economic recovery. Accordingly, stock markets rallied spectacularly last week, with the BSE Sensex and the Nifty rising by about 12% and 11% respectively. In fact, this uptrend began much earlier on March 9, and since then, the Dow Jones, the BSE Sensex and the Nifty have risen more than 20%, underlining the cautious optimism that has seeped into the markets. The optimism is clearly shared by the FIIs, which have been net buyers worth Rs2,400 crore in the Indian markets during the same period. With the US bank rescue plan in place and recent indications that major banks had operated profitably in the first two months of 2009, global investors may believe the worst is over for US banks, even as economists fiercely debate over the effectiveness of the plan.

So what does the plan entail? Well, its objective is to rid banks’ balance sheets off toxic assets and illiquid loans, thereby enabling them to start lending once again. The Treasury, in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, announced the “Public–Private Investment Program” as part of its efforts to cleanse balance sheets across the financial system and ensure credit availability to households and businesses.

The Federal Government would use US$75-100 billion from the Troubled Asset Relief Program (TARP) and capital from private investors to generate US$500 billion in purchasing power to buy out troubled assets. The investment programme would have the potential to expand to as much as $1 trillion over a period of time, according to the US Treasury. The participation of long-term investors, such as individuals, pension plans, and insurance companies would be particularly encouraged. The “Public–Private Investment Programme” would be designed around three basic principles—maximizing the impact of each taxpayer dollar, shared risk and profits with private-sector participants, and private-sector price discovery.

Meanwhile, back home, the annual inflation was reported at 0.27% for the week-ended March 14. While, technically, we are close to deflation levels, there is little to indicate that we would undergo the pains of a typical deflationary scenario.

To see full report: KARVY BAZAAR BAATEIN