Thursday, July 24, 2008


What a difference a week makes! Around the same time last week we were surrounded by prophets of doom, who forecast levels of new lows for the Indian markets. Predictions ranged from 8500 to 12000 for the sensex. Any upside was said to be a technical bounce back, destined to be short lived.

Since then, the incumbent government has managed to hold on to power and the Finance minister is taking of unleashing a new wave of reforms. Prominent among them are banking, pension and insurance reforms, which could spur a new wave of foreign investments into the country. The nuclear deal shows the country in a positive light and promises good prospects for the few companies operating in related sectors.

Crude is finally taking it on the chin. From highs of $ 147/bbl to $ 125/bbl the cooling of crude oil represents a major plus for economies like India who depend largely on imports for their requirements. A further fall to $ 110/bbl is expected, though I suspect that once something which has gone up the way crude has, starts falling, it is unlikely to rest with a fall of just 20 % or so. This has been amply demonstrated by the fall in our stock markets since January and could also happen with crude.

Other commodities are likely to follow suit and this could act as a booster to the Indian economy. Again after the Olympics in September, a slowdown in imports from China is expected. Also on the supply side, a lot of chemical and other polluting industries which have been forced to stop production are going to resume their supplies.

The inflation front has delivered an unexpected bit of good news. Inflation growth has slowed down from 11.91 % to 11.89 %. Although the difference is marginal, the good news is that after many months, we are actually witnessing a slowdown in inflation. A cursory glance at the inflation numbers reveals that a large component of the inflation growth is the rise in prices of fruits and vegetables. Inflation contributed by manufactured goods has slowed down. This is a positive because fruits and vegetables induced inflation is seasonal in nature and could easily reverse with better rainfall.

Companies results are better than expected, though most analysts would say that they had expected results to be good, with the effects of the slowdown coming in only in the third or fourth quarter of this year.

Things have more or less worked out the way I had expected them to in a post last week titled "Where do we go from here". Although I will be the first to admit that I never expected all these factors to pan out so soon or all together. This is what has caused a tremendous rally in the markets and, though I could be wrong and all the above factors could suddenly reverse, indications are that we should recoup some of the lost ground.

1 comment:


Are we in for better times. That depends on where you are in the world.