Few Words on Market – 081215
081215: The previous month has seen lot of activity on economic front. We have seen the Government taking various steps in order to revive the sentiments so that the economy can be brought back on track from the visible slowdown it is facing currently. Almost seventy percent of the IIP is dictated by the manufacturing sector and the recent negative IIP figures reveal the contraction which the sector is facing. Most of the purchase decisions by consumers are being postponed for future, be it any sector.
The Government is likely to announce second economic stimulus package which is a clear indication of how worried and concerned the Govt. is at this point of time. Many people have been comparing these packages with those announced by the other countries. Firstly, one has to be clear that though the package is comparatively small it would lead to great relief among the consumers. The four percent cut in cenvat straight away means four percent reduction in prices. The step has immediately lead to cut in car prices and there are many other products which would get benefited. Secondly, this package would be benefiting the consumers unlike the packages of other countries which are meant either to bail out a company or to buy out a company. Thirdly, we are lucky that elections are nearby and that is yet another reason for the Govt. to act swift, had there been no elections we might not have got any such stimulus package.
The interest rates are likely to fall drastically. The RBI has clearly hinted that this is the regime of low interest rates and the time is not far when we see the current FD levels of 10% come down even to 8% and below within few months. The initial cut may be expected by the banks anytime. This is correct time for investors to look at income funds. Apart from various benchmark cuts by RBI the credit off take remains very low on account of high lending rates. Even if for instance the credit demand picks up it would be very low compared to previous demand as the commodity rates too have fallen drastically hence companies will be needing low working capital, hence borrowing by banks at high interest rates from depositors is not possible for long.
The crude prices are down drastically, the people who were predicting $200 per barrel are now talking of $30 now. There is more scope of fuel price cut which the Govt. may act just little time before announcing the general elections. The recent cut will bring in lot of relief to the consumers going forward. The fiscal deficit of India is concerning and this fall in crude prices will bring down the import bill of India which is a great news for developing country like ours. The commodity prices heve fallen sharply across the board which is yet another good news for the consumers. All these factors coupled with contracting consumer demand is going to bring down the inflation very sharply in next few months giving more room for the banks to cut interest rates.
This section has been mentioning since long that property prices have to correct substantially and they have to certain extent in many areas. The suburban areas of almost all cities have already seen a steep decline and majority of the property developers and dealers expect further fall from these levels. Few months down the line it would be an opportunity for those looking for a house for living as the prices are unlikely to review until the investors and traders in property return back.
The markets have fallen too low too fast which undoubtedly is beyond any fundamental justification. Though the price factor in the market has corrected the time factor is yet to correct. Market has to trade in the range for some time before they attempt to make any major move up. The immediate resistance for the Nifty would come at around 3240 where decent amount of profit booking can occur. If there is any buying at these levels it would be more on short covering than actual buying.
Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.