Indian stock market enters into a long term bear phase as the rate at which banks borrow money for a day, closed at 9.25 per cent, the highest since January 2001
Babu Ghanta
Dec. 23, 2006

The bull market in Sensex started in Late 2001 as the as the call rate at which banks borrow money for a day topped out. Sensex built a base in 2002 and 2003 and then finally took off to a historic bull market that increased prices almost ten folds in just three years. Interestingly, the same call rate has come reached the 9.25% again – the highest since January 2001. It looks similar to Dow Jones Industrial Average in 1987. The Wall Street went up between 1982 and 1987 from below 1000 in Dow to above 2700 in Dow. The rally was fueled by factors that included sharp drop in rates and a booming economy between 1983 and 1987. In 1987 saw a fabulous rally that has parallel to Sensex in 2006. Then is a short time, the Fed in America raised rates like crazy in July-September 1987. The Dow crashed in the middle of October. In a single day Dow lost more than 25%.

Sensex looks similar today. The interest rate increase is more gradual and the possibility of a crash is less but the Sensex most likely will retest the base of 6300 – a 60% retracement from the top.

According top media reports, the RBI had last week announced a 50-basis-point increase in the cash reserve ratio (CRR) to 5.5 per cent, in equal phases of 25 basis points effective December 23 and January 6.

| It seems RBI is concerned just like new Fed Chairman Alan Greenspan was in 1987.

Indian stock market enters into a long term bear phase as the rate at which banks borrow money for a day, closed at 9.25 per cent, the highest since January 2001
Babu Ghanta
It seems RBI is concerned just like new Fed Chairman Alan Greenspan was in 1987...Sensex most likely will retest the base of 6300 – a 60% retracement from the top.
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