Factors behind the positive global Rally

Written by Abhishek Parakh
Posted April 12, 2009 at 1:05 pm

The positive rally in the global financial markets including Indian Stock Market over the last one month continued last week as well. There exist a feeling in traders and investors that the worst of the global economic downturn may be over. But this is not true. There have been few factors which have occurred consecutively which made market to show positive sign.

Here are some of the main factors behind the global market rally:

Positive outlook of financial institutions

The current market rally started with some large financial institutions in the US announcing a positive outlook in the beginning of last month. The accounting regulator in the US has relaxed the accounting rules which are expected to improve the banks’ accounting profits.

The chairman of the US Federal Reserve, Ben Bernanke, also commented that the policies to defreeze credit markets started showing results which raised the optimism levels across global markets.

G20 meet

Earlier the announcements and commitments made by the G20 leaders to fight the global recession also helped in creating positive sentiments.

The agreements and announcements made during the G20 leaders’ meet in London last week further added to the positive sentiments in the markets. However, analysts are a bit cautious and want to wait and see the action on the ground, based on the announcements during the G20 meet.

More traders in the market

Due to the continued rally in the markets during the last few weeks, many traders started active participation again. The inflow of positive news has helped in creating a momentum in the global markets. The positive market momentum has increased the investor confidence levels, and hence their risk appetite too.

During the market’s crash last year, many investors withdrew their holdings and invested in other safer investment instruments like fixed deposits, etc. These investors are feeling left-out in the current market run. Some of these investors are coming back to the stock markets and investing at every market correction. Hence, there are stronger support levels in the markets.

Feel good factor

Many analysts say that there is a ‘feel good’ factor ruling in the global markets. Many investors believe the measures undertaken by the governments and central banks around the world are beginning to show results, and the bottom has already been reached.

EquityPandit.com advice cautious approach

However, EquityPandit.com suggests that investors should keep in mind that the markets have already rallied 25-30% from their lows which can go for maximum upto 35-40%. The world economy has shown some early signs of revival but it has still to show credible and sustained signs of improvement.

There are still many factors that are not giving a rosy picture of the economy. For example, The Indian Lok Sabha election is in line, the unemployment level is still very high and is on the rise worldwide. The unemployment rate in the US is 8.5 percent - the highest in the last 15 years. The factory output has not yet picked up which shows that retail customers are yet to make their way back to shopping in large numbers.

Since the markets have rallied quite significantly during the last five weeks, caution is advised. Also, the companies will announce their quarterly earnings reports in the next few days. Investors are advised to have patience and study the results and announcements of various companies thoroughly before taking a decision to invest further in the stock markets.

EquityPandit.com strongly feels that market may go up to 20% down after touching 11,000 levels for sensex as this is bear rally and further Indian elections are in queue. This negative rally can be a bigger one if Third front comes in the power and than the Indian Stock Market would see new lows.

So stay connected with EquityPandit.com, be cautious in trading, do your own research and go for intelligent trading and investments to book huge profits.

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