Reader Question Answered: why I sound sceptical on Indian market for last few months. What about the Indian growth story?
A very interesting question hit my inbox last weekend when market was near 5100. The question is really very interesting and so I thought I will share it with all my readers. The Question was
Why I sound sceptical on Indian market for last few months. What about the Indian growth story?
I am sure this may be the question of many blog readers.
I was believer of Indian growth story but not recently for few reasons.
In May June India had one big concern. It was inflation. Every country had its other problem but Inflation was global problem because of rising commodity prices and so was in India.
India Government and RBI tried controlling the inflation by tightening the interest rate and liquidity and sacrificing growth. These steps lead to multiple problems now.
1. Growth slowed down
We had forecast of 8% GDP growth and now it has come down to under 7% and so this means market will have negative sentiments. RBI statements like they are ready to sacrifice growth for inflation were not comforting because inflation at that time was not driven by liquidity but was driven by commodity prices.
2. USD not comforting
Steps that are taken to control inflation at the cost of growth mean Indian market would see an outflow of money which has taken USD rates roughly from 44ish to 52ish levels in no time. Roughly 20% increase in USD rates.
Let us take some numbers to see how this is actually making situation worst for India. From may till now oil has fallen by 20% from 110ish to 90ish but the appreciation of dollar by 20% means that the benefit of oil cooling in the world market has no benefit for India. Similar things also apply to other commodities and this means India has no benefit whatsoever to the world’s cooling commodities scenario now.
3. High Interest Rate
Currently inflation is where it was and we have added issues of less growth, less foreign inflows and high interest rates. So according to me our government failed to take right steps in May June time frame that has actually compounded lot of problems.
We have high inflation and still may need to lower interest rates to get the growth back on track. Work on methods for more inflows of foreign money. So I am not very bullish on market as investor but more favourable for trading.
Final Thoughts
If Indian government can show us steps they are taking on current issues especially USD inflows that will give some sort of hope.
What are your thoughts about the current Indian scenario? Share your views in comments below.
Shabbir bhayya,
what will be the kind of signals that market will show? How can investors understand those signals?
I want to contact you . Can you please share your number with me ? my number is 9703579258
Ok, due to the increase in input cost, the cost of production and any particlular item is increasing and the selling price is also increasing accordingly.
But when will the inflation come down and when (year & quarter) can we expect the companies to make profits again?
Market will give signals when things change.
Due to the increase in the interest rates, liquidity would reduce.
If the money flow reduces, the spending reduces and the demand comes down then automatically the prices will come down thereby leading to decrease in inflation.
Then the RBI would reduce policy rates periodically after every monthly policy review.
Yes that is true if inflation is because of high liquidity but current inflation is more of a factor of raw material cost. If that does not go down, inflation cannot go down.
Hi Shabbir….
Its a quite impressive analysis.
If the RBI does not increase the key policy rates, then the inflation would have increased further. So the increase in the key policy rates by RBI periodically to sustain inflation is a correct move. Now the inflation is hovering just above 9, and it would come down in the subsequent months which will result in the RBI’s rates rolling back to normal.
Why do you think it will come down. I mean what could be the reason that inflation now would come down?
Dear Mr shabbir
I agree with u and add one more reason that is corruption world wide.
Dear Mr. Shabbir
I have invested in hdfc 200 & equity reliance banking,icici pru focus and idfc sme fund since june 2011. but when i review my investment i am not happy my mf performance. pls. give me advise should i redeemed some funds. (this is sip investment Rs.3000/ each.)
thanx
naeem
dubai
Depends on your investment objective as well but current market is not ideal for investments.
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This is not the blog for starting business and refer http://imtips.co for that Pathik.