Few Words on Market – 090317
090317: The markets globally continue to remain on the edge. Every country and its central bank are fighting hard to avoid further deterioration in the economic scenario prevalent right now. The American economy has entered into recession and the Obama administration is doing all possible to safeguard the country by announcing different kinds of packages for the Americans. Fears of deflation are looming large across the globe. Some analysts feel India too may enter into the deflationary phase which could have negative impact on the economy.
Deflation is a situation where the inflation falls below zero percent due to gradual decrease in the price levels of goods and services, indicating negative growth across sectors and falling demand, leading to lower activities towards development of the economy which a country like India cannot afford at the moment. Our estimation is little different from those predicting pain due to deflation. Yes, it is all possible that the inflation in India may fall below zero percent, but that would be more of due to very high base of last year. For example if the inflation last year was 12% and this year it is 11.5% definitely its an negative growth but does that mean 11.5% is low? Secondly a negative inflation for short duration may infact benefit the consumers as the value of money would rise, there would be opportunity spending by the masses on account of falling prices.
Developing country like India cannot face deflationary situation for long as there is still lot of room for the central bank to tweak the interest rates and the central government can on its own increase the budgets on infrastructure spending and can stimulate many other sectors if required so. We have already witnessed what falling interest rates can do as they make money available cheaper. The car sales in February have increased 15% – 20% across the board and may further improve if the rates fall more. The inflation is already below 2.5% and as it goes nearer to zero expect more actions from the RBI hence ultimately leading to spur in demand.
What was mentioned in Nov’08 in this segment still holds good. The Nifty was predicted to trade in a wide range of 2500 – 3300 (3280 being a big hurdle) and since then though both the levels have been tested and are yet to be broken decisively. Now it looks more certain that we may continue in the range for some more time until a new government led by BJP or Congress is installed at the centre. If 2500 on Nifty is broken for some reason we may go few more hundred points below. We can feel more comfortable once we start trading above 2850.
The recent fall in market in spite of falling inflation can be attributed to the political drama. The worst thing which can happen to India is Third front forming a government. The red Left is trying hard to bring in more members which sent the markets into red aswell. To us the chances of third front coming to power is miniscule. The front is nothing else but a “kichhadi” of people, each one aspiring to become the next PM! Hence the group will be crushed down under its own weight.
Index funds were once again advised in the previous edition to be bought at 8500 and below levels, as anticipated they have moved up from there and are giving anywhere between 6% – 8% gross returns. Keep an eye on the same if someone has missed it and can still enter the same as and when the scenario looks favorable if it’s not possible to decide on your own seeking advice from your financial advisor is suggested. We will concentrate on sectors after there is reasonable evidence that the indices are stable.
Investors are advised to stay away from gold for sometime. The prices have risen quite steeply and hence there are more risks attached to the commodity right now. Investors into the commodity are thinking the demand has risen manifold which is not the case as of now. The imports have fallen very steeply and moreover people are cashing in by selling old jewels.
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.