Markets rebound on short covering, strong global cues

13 October 2008

Markets have witnessed sharp pullback rally on the back of short covering and strong global cues, after severe crash in last week. Benchmark indices have broken five-day losing streak and have ended on a strong note. This rally was largely led by beaten down banking and capital goods stocks followed by realty, power, telecom, technology and metal stocks. The Sensex ended above 11000 mark while the Nifty clawed back above 3500 during the day but failed to close above that level.

Central banks and governments globally are giving first preference to credit crisis and are trying to solve liquidity problems. Governments address core issues by guaranteeing inter-bank liquidity. Governments to guarantee debt issued by banks to encourage lending and to ease the credit crunch.

Australia, New Zealand and other South East Asian governments are guaranteeing bank deposits. Treasury Secretary, Henry Paulson is considering guaranteeing debts issued by banks after USD 700 billion package.

United Kingdom (UK) government is taking direct stakes in banking system by taking preference shares. The Royal Bank of Scotland (RBS), HBOS and Lloyds TSB will get USD 64 billion government investment.

Gordon Brown, Prime Minister of the United Kingdom, announced the government extending a GBP 37-billion (USD 64 billion) lifeline to UK banks. Brown said he spoke to US President George W Bush and the two leaders had agreed on common ground for action to deal with the global financial crisis.

As part of the break-up, RBS, HBOS and Lloyds TSB will raise GBP 20 billion, GBP 11.5 billion and GBP 5.5 billion respectively. Meanwhile, Lloyds TSB has revised its merger terms for taking over HBOS.