Reference Auto

The Bombay Stock Exchange (BSE) Sensex has risen to a two-month high touching the 17,000-mark again, and despite the year-end letdowns (in 2011), this has given a glimmer of hope to investors after quite a while.

If there are sustainable positive cues, we could see the benchmark index surpass 23,000 points by the year-end.

With the Reserve Bank lowering the cash reserve ratio, it feebly indicates that buoyancy in the stock markets will be back in the days ahead.

So, what happens when ratios and rates are reduced? When ratios and key rates like the repo rate (the rate at which the Reserve Bank lends to other banks) and the reverse repo rate (the rate at which other banks lend to the RBI) are reduced, then more money is available in the monetary system.

This will result in more cash flow and more money will be put into the stock markets. Overall, this will bring a positive outcome into the bourses. It also indicates that the economy could be back on the path of growth.

Growth and investment perception could see a revival with the RBI move in the next few quarters prompting auto, bank and capital goods stocks to outperform the markets.

Therefore, with the Reserve Bank moving in tandem with the stock market, this is a positive sign at least in the near to medium term.

With the Sensex rise on Wednesday, we saw Infosys and Tata Motors propel the markets as investors resorted to buying.

On Wednesday, the bellwether index, 30-share BSE index, ended 81.4 points higher at 17,077.18, its highest closing level since November 14.

Eighteen of the 30 Sensex stocks closed in the green on Wednesday. The 50-share NSE Nifty index went up 0.6 per cent to 5,158.30 points.

During the month, the Sensex has seen an almost 10 per cent rise. So, those investing in heavyweight Sensex stocks or equity mutual funds could have earned an interest of about 10 per cent in just a month (which is more that what a bank fixed deposit investor earns in a year).

The benchmark index has gained 10 per cent so far this month, with foreign investors lapping up shares worth over $1 billion. The index fell nearly a fourth during last year as foreign institutional investors or FIIs pulled out over $500 million as rate increases by the RBI took a toll on economic growth.

Worldwide, despite the gloom, European markets are looking to India while the Asian bourses are likely to tread cautiously.

So the Reserve Bank, with its latest rate cut, has paved the way for fresh impetus to the stock markets and if such a push is strong enough, could we see the Sensex surpass the 23,000 points-mark by this year-end?