New Delhi, India (BBN) – The European Central Bank on Thursday unleashed a 1.1 trillion euro bond buying stimulus to rejuvenate the eurozone economy shared by 19 countries. The announcement triggered a global stock market rally though the euro plunged nearly 2.0 per cent to an 11-year low against the dollar.
Buoyed by the bigger-than-expected size of ECB stimulus, the BSE Sensex jumped over 400 points to hit a record high of 29,408.73 in morning trade. The Nifty advanced over 100 points to an all-time high of 8,866.40. The rupee also rallied to 61.37 per dollar, rising 33 paise from Thursday’s close of 61.70, reports ndtv.
The BSE Sensex and Nifty are on course for a seventh straight day of gains since RBI’s surprise rate cut announcement last week. The massive rally has seen the Sensex add around 2,000 points.
Here’s all you need to know about ECB stimulus:
Reasons for the stimulus: Eurozone economy is barely growing and inflation is minus 0.2 per cent annually; some countries such as Greece, Portugal and Ireland are struggling under excessive government debt; unemployment is as high as 11.5 per cent.
Stimulus will support growth: ECB’s bond buying aims to kick-start eurozone economy the way three rounds of quantitative easing jump-started the US economy. Bond purchases would increase liquidity, raising inflation and making credit cheaper and easier to get. The euro would fall, boosting exports.
India set to gain most: India is expected to benefit more than other emerging market countries because its economy is seen rebounding and the new government has promised a series of reforms, analysts say. Indranil Sen Gupta of Bank of America says ECB’s stimulus should support portfolio equity inflows to Indian markets. The investment bank expects $25 billion of portfolio flows in the country in financial year 2015-16. In calendar year 2014, India received around $40 billion in portfolio flows. Rakesh Arora of Macquarie told NDTV that global liquidity had been tight for the last two quarters, so the latest stimulus will provide a welcome relief. “India should be able to attract its fair share of inflows,” he added.
Impact on domestic equities: Increased liquidity always helps risk assets such as equities, analysts say. Taimur Baig of Deutsche Bank told NDTV that the ECB stimulus will “certainly be helpful for emerging market sentiments in general and India will also be partly benefitting from that”. Bank of America’s equity strategist Jyoti Jaipuria expects the BSE Sensex to rise to 33,000 by December 2015. Macquarie has a Nifty target of 9,940 by year end.
Impact on currency: The rupee will outperform other emerging market currencies even though RBI Governor Raghuram Rajan is expected to buy dollars so that the central bank has enough reserves by September 2014, when the Federal Reserve could start raising interest rates in the US, says Bank of America. The investment bank expects the rupee to trade in a 60-65 per dollar band.
BBN/SSR/AD-23Jan15-8:11 pm (BST)
