Stocks bounce back, jitters remain

With central banks around the world injecting cash to avert a liquidity crisis, global equity markets staged a pullback on Monday. However, market experts think the trend may not be sustainable.

"There will be more volatility ahead as more news from the US sub-prime market flows in. The correction till now is based only on those facts that the markets know. An appropriate re-pricing in stocks can happen only after all the factors are known," said Andrew Holland, managing director in India of DSP Merrill Lynch.

While the Bombay Stock Exchange’s benchmark Sensex gained 148.96 points, or 1 per cent, to close at 15,0171.21 points, the 50-share Nifty of the National Stock Exchange closed 40.3 points, or 0.93 per cent, higher at 4,373.65. Major indices in the Asia Pacific region recovered some lost ground on Monday.

Market analysts said the magnitude of the widely feared liquidity crisis was not yet known and it was the intervention of governments in various countries that brought some relief to the markets. "Nobody actually knows how big this problem is. However, governments have shown their intention to stave off a liquidity crisis," said Manish Sonthalia, vice-president (equity strategy), Motilal Oswal Securities.

However, the gap between Nifty August futures and the underlying considerably narrowed to 12.65 points on Monday as investors who went short (sold in the derivatives segment expecting a further fall) covered their positions by buying equal amounts of August Nifty contracts.

Chartists say the Indian market may run up to hit a new high before dropping to test support levels around last week’s trough.