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LTRO might continue to fuel rally in stocks

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LTRO might continue to fuel rally in stocks
The European Central Bank (ECB) on Wednesday unleashed a fresh round of liquidity of Euro 529.5 billion into the banking system in Europe by way of cheap three year loans. These loans also called Long Term Refinancing Operations (LTRO) are largely to avoid an escalating debt crisis in Europe and to enable European Banks to honour their debt commitments. These loans are given at an extremely cheap rate of 1%.

The last time the ECB did an LTRO was in December to the tune of Euro 489 billion dollars. While there might not be a direct indications that the money has found its way into asset classes, the way gold and emerging market equities has rallied suggests that the easing of liquidity conditions has certainly aided the rally in Indian stocks.

 

Foreign institutional investor inflows (FIIs) into Indian markets in the last two months has been the highest ever. On a single day on Friday Feb 24, 2012, FIIs put in a staggering Rs 7,400 crores, creating a new record.

In fact, FII investments thus far has crossed Rs 35,000 crores making it a new record in the first two months. Indian stocks have rallied almost 22% in the first two months of the calendar year, another record.

Clearly, this suggests that liquidity infusion by the ECB is finding its way into emerging markets like India. The second round of funding that got completed on Wednesday might also see a fresh gush of inflows, which might propel Indian markets further.

GoodReturns.in

Read more about: ecb fiis banks
Story first published: Thursday, March 1, 2012, 10:44 [IST]
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