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.
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.
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.
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.
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.
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