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Money Feb 28, 2012

‘Liquidity in eurozone and Budget 2012 will drive markets’

By Firstbiz Staff

The UP elections, a quantum leap in crude oil prices, liquidity infusion by the European Central Bank (ECB) into the eurozone today and the forthcoming Union Budget are reasons enough for a positive market , which has gained around 250 points today after falling well below the psychological 18,000 yesterday.

The ECB is hoping to give the economy a further shot in the arm today when it allocates its second, and likely final, three-year loan. Estimates vary widely, but a Dow Jones Newswires survey of 26 banks gave a median forecast of 450 billion.

Estimates vary widely, but a Dow Jones Newswires survey of 26 banks gave a median forecast of 450 billion.

Once the liquidity is flooded into the financial system of the eurozone, Indian markets too can look forward to more inflows, said UR Bhat,MD of Dalton Capital to CNBC-TV18 in an interview.

The market can then begin to focus on the positives and increase its risk appetite again. The second quantum of LTRO -European Central Bank's second-ever long-term refinancing operation via inexpensive three-year loans- can determine an upside in equities, he said. "Given that the expectation is above 600 billion, then there can be further inflows into the country."

However, doubts remain about the ability of the LTRO operations to spur lending activity necessary to avoid a credit crunch across the troubled euro area.

He also predicts that given the poor economic fundamentals, March quarter results would be the worst for the banking sector which are already under pressure due to the growing non performing assets and and poor margins.

Hence, if Budget 2012 address most of the issues that seem to be bothering the market then the market is likely to bounce back post the announcement.

Watch more on CNBC TV 18

by Firstbiz Staff

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