~:Three Stooges and the Indian Capital Markets:~
As expected, selling continued to keep market under pressure, yesterday. A gap down opening was followed by a range bound market till end. Nifty made an intraday high of 4879 and a low of 4824, finally giving a close at 4949 with a loss of 93 points.However looking at today's' morning conditions, it seems that the market has found some support around 4820---4800 mark as the market is down by a few points (the Sensex is down by only 17 points, when I last saw it...). Aggressive traders can take long positions keep 4820 as the stop, with a T--4950.
RESISTANCE- 4965 & 4990
SUPPORT--4820 & 4780
The Swing traders can try State Bank of India at Rs.1857, T--Rs.1873, SL--Rs.1849.
Yes, you have guessed it correctly, the three stooges in this "Economic Circus", are the Prime Minister of India, Dr. Manmohan Singh, the Finance Minister of India, Dr.Pranab Mukherjee and the governor of the RBI, Dr. D. Subbarao, who have been instrumental in destroying the stupendous growth rate of the India Inc and in the process lost the confidence of the FIIs who were the primary force behind the earlier bull market. The GOI instead of going in for both fiscal and monetary measures took the easy option, which requires hardly any brain work. No where in the world only monetary measure worked in bringing down such aggressive inflation and it was a foregone conclusion that it would also not work in India. But then these three stooges continued their clownish assessment of the Indian economy and dealt the situation, hereto, with stark whimsical manner. In other words these three characters of mass destruction of Indian wealth in the Indian equity markets, "Panicked" and all their wits fell flat on the ground. It is to be understood that we came out of similar situations earlier also, like the 1997-98, Asian financial crisis and the 1989-90 foreign exchange reserve crisis, by using more logical steps. So, what is that we can’t come out of the present situation? The GOI also bailed itself out of other crises like the “first oil shock in 1973” and the 24% inflation rate in 1979-80. So, how is that this time the GOI (Government of India) under a "Copy Book" economist as the PM and a "By default" economist, as the RBI governor, made a mess of the entire thing?
So, if this is the case, the how came, the GOI (Government of India) win the trust of the FIIs and other foreign bodies who would like to trade in the Indian markets? Does, this kinds of actions send a very good picture of the India among the international crowd? Definitely not...!!
The fact that has to be remembered is that since India is a growing economy, it is altogether “different ball game” to finance a growth rate of 9 (nine) per cent against the 5 (five per) cent, which it (India) was peddling, only a few years back. Credit flow and money flow have expanded, as is the case with capital flow from abroad. Sometimes it leads to embarrassments like inflation, but we have to tackle it with effective measures but the not in this poor way by applying, "Stooge sort", which these persons have done till date. It seems the GOI has no accepted economic formulae at place in the present moment, to tackle inflation and growth conundrums. India Inc earlier said that, "The Reserve Bank of India's (RBI) 12th rate hike since March 2010 is unlikely to tame rising inflation and could instead lead to further slowdown in investments and industrial growth".
"Even as RBI justifies this rate hike to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective," FICCI Secretary General, Rajiv Kumar said.
Kumar added, it is ironic that RBI is now clearly banking on inflation rates to start declining towards the latter part of the current fiscal, based purely on base effect. Industry body ASSOCHAM expressed a similar view that successive rate hikes by the Central Bank have not been able to control rising inflation.
The RBI has followed hawkish monetary policy in the past 19 months to tame high inflation, which was still ruling at about 9.8 per cent. The Reserve Bank on the last occasion raised the short-term lending (repo) rate by 25 basis points to 8.25 per cent and the short-term borrowing (reverse repo) rate have moved up by a similar percentage point to 7.25 per cent putting the funding for the India Inc, into a tight spot; further aggravating the supply side issues, indirectly increasing the demand pull and then putting water to all these so called "Synthetic Efforts" to control the "Inflation Tiger".
CII has repeatedly pointed out in the past that there is an urgent action required to step up the growth momentum, especially in the manufacturing sector. Growth in industrial production slipped to a 21-month low of 3.3 per cent in July. The country's economic growth also moderated to 7.7 per cent during the April-June quarter this fiscal, the slowest growth in six quarters.
"Global economic uncertainties and high interest rate environment is likely to put brakes on new investments and put corporate India in a difficult position to maintain the growth momentum", Assocham Secretary General D S Rawat said earlier. GDP growth during the first quarter (April-June) of the 2011-12 financial year moderated to an 18-month low of 7.7% from 8.8% in the corresponding period year ago. The slowdown was also reflected in industrial output growth rate which dipped in July to 3.3%, the lowest in 21 months. But alas!! If these three stooges had their brains in the proper place...!!
The Reserve Bank said food inflation is near double digits, despite the normal monsoon, underlining the fact that it is driven by structural demand-supply imbalances and cannot be dismissed as a temporary on. But then the RBI is silent on the measures needed, except that "steroidal" treatment of the Indian economy. Yes, it is true that by any standards, the shocking increases in the most basic of commodities, would surely be having an effect on the calorie intake of the weaker sections, taking a toll on their healths but how long can we continue to play with our stupendous growth rates by applying murderous policies and tools?
Having said this, let us see who praised these stupid and ineffective actions by the Government of India: (i) Planning Commission Deputy Chairman Montek Singh Ahluwalia who was once touted as the next Finance Minister of India (2009 if you remember correctly) and (ii) the PMEAC chairman C Rangarajan. The PMEAC chief Rangarajan said, "The RBI has taken the correct decision. In the context of rising inflation, RBI had no other option but to raise interest rates." Expressing similar opinion, Ahluwalia said, "The rate hike is within a range that is not unreasonable" as inflation has continued to remain high. I view these two gentleman as the assistants of roadside, magic shows, where one of the "toady" (yes-man) repeats what the prime protagonists says.
However, since the butt of the jokes (action) of these entertainers and assistant comedians, have already evoked sharp criticism from the Industry bodies, we can look forward for some saner policy actions in the coming days unless these jokers of "Indian Economic Landscape", have a 100% malfunctioning ear-drums.
Therefore, taking this fact into consideration, the prime sectors which should do well if the RBI takes a pause in the interest rate hike are: Banks, Real Estate, Construction, Auto and Auto ancillary.
The banks who are the proxy of the India Growth Story, will be one of the major beneficiaries, if the RBI takes a pause in the interest rate hike.
The point which I am trying to drive home is that if there is a supply side problem, the government could have dealt it in a more challenging way, like lowering the import tariffs (thus stopping to some extent huge rupee depreciation against the USD), rationalizing the tax structure, bringing about more reforms in the ECB funding (at least 95% of investments in the country is domestic investment), giving special impetus to the infrastructure companies, encouraging the renewal energy sector to cut short the dependence on the crude oil, ushering in more accountability of the ministers & bureaucrats in the administration, tabling in a legislation to stop too much speculation in the real estate sector, and so on......
Though Indian cabinet was planning to double the investment in infrastructure sector to USD one trillion in the 12th Five Year Plan (2012-17) compared to USD 500 billion in the current Plan, nothing has come out on paper till date. The FIIs and the marketmen do not like these kinds of inefficiencies and aberrations from an elected government, and hence their sentiments are aptly reflected in the Indian markets.
Just giving steroids for too long only brings in long standing side-effects and the results are reflected in India's share market, which is suffering inspite of having one of the best fundamentals among the emerging economies.
The share market is mostly a sentiment driven game and if our FMO, PMO and RBI, fails to win the confidence of the FIIs, DIIs and retail investors, in particular, then having one the best fundamentals in the globe many not work. Our Prime Minister, had made a comment long back, "I do not know how a share market works"........and this speaks volumes about the constrains of having a "copy book" economist as the PM of this great country.
Hereto, none of these kinds of "odd measures" have made any impact or helped bring the issue of price rise to the to some tolerable levels, except giving a "hard landing" to the Indian economy. The government and its tunnel vision of India, on a "mythical mission to global supremacy" seems to be "Utopian" at the moment, as it battles corruption and high inflation within its own fold without proper tools in their armoury. The RBI and FMO should face the press/media with an impressive arsenal of new research data, instead of justifying the rate hikes with same old hackneyed manuscripts.
It is time the three stooges, finds out new policy actions so that the India growth story which was started during the time of former, Prime Minister of India, Mr. Atal Vihari Vajpayee, is continued without much tampering and trampling.
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