Easy Money Policy for an Extended Period

Sudden fall in unemployment numbers in US had raised speculations that Federal Reserve may end its easy money policy sooner. Accordingly, US Dollar started gaining against other major currencies including Indian Rupee. Poor monsoon data and negative FII inflows also put pressure on INR in the beginning of the week.

Gold and other commodities were also seen losing against US Dollar. Bursting of bubble in Chinese markets also added pressure on the metals.

However, Federal Reserve, in its FOMC minutes on Wednesday, said that the easy money policy will be continued for an extended period of time and it would pump in $300 billion dollars (around Rs.15,00,000 lacs) into the market by October 2009. This statement revived positive sentiments in the global markets.

Positive GDP numbers in Germany also added to the bullish sentiments of the markets. Euro gained in a big way against US Dollar. Gold also had a spurt against USD rising to $963. Fall in South African Gold production also helped the Gold prices to firm up against US Dollar.

Indian Rupee also turned into positive trend and went below 48 levels. Surprise rise in IIP numbers (India) for the last month also helped INR to strengthen against USD. However, heavy demand for Dollars from the importers checked any major appreciation for Rupee.

Worse than expected US Consumer confidence data released in US on Friday indicated that the recession is far from over and the US Dollar gained against other major currencies accordingly. Gold also fell to $948 levels.

US Dollar may begin the next week with some gains against other major currencies including Indian Rupee. Local currency markets will also look for the trend in the equity markets particularly the FII inflows. For the next week, Rupee may trade between 48 and 49 levels.

There is a major risk of downgrading of Indian Rupee in case our government increases its borrowing programme for the current fiscal year to accommodate the possible drought relief measures.

Gold may face a strong resistance around $963 & $ 980 levels. Breaking the above two levels may take the prices to $1000 levels. In Rupee terms, MCX Gold may face resistance around 15020 and 15200 levels.

Indian stock markets are now cautious about the impact of poor monsoon on the overall GDP. It is expected that there may be an impairment of around 1.00% in the overall GDP for the current year due to poor monsoon. Further, reduced crop production will add to the pressure on the food inflation which is already at a high level.

Overall outlook for a normal monsoon seems to be a distance dream now and the short fall is likely to be over 25%, sounding weakness for rural demand prospects.

Still the broader trend of stock prices has been inline with Dow futures and the net inflows from FIIs, who were once again net sellers in cash market except for Thursday. The gains were broad based and the mid and small cap stocks gained more than the large cap stocks. There was renewed interest from domestic institutions and they gave strong support at every low, absorbing most of the net sales from FIIs and public.

Stock markets are quite happy about the IIP data and there is view that impact of poor monsoon may be nullified by a strong growth in industrial sector. However, personally I would like to see the trend of IIP numbers for some more months to take a firm view on the revival in the industrial sector.

Next week, Indian Stock markets will be looking for direction from its Asian peers and US Dollar movement. As said earlier, Nifty may face resistance around 4610 & 4730 levels and find support around 4520 and 4480 levels. Firm breaking above 4730 levels may indicate a new bull cycle whereas a complete fall below 440 may point towards a steep fall.

Wishes for a happy week ahead.

Break out is possible?

Our market has been hovering in a narrow range of 200 points (Nifty) for many days now. Second stimulus package to be approved by US Senate and the Interim Budget to be presented in Indian Parliament in the coming week are expected to take the market beyond the range upwards.

Week that was

Worse than expected US GDP data resulted in a negative opening for our market. With the corporate results were almost over, the traders were clueless on the future direction for the Nifty. Hence, market was stuck in a narrow range. Trading volumes dried up. As expected, Nifty took a strong support at the levels around 2750 points.

Sudden spurt in inflation in the previous two weeks surprised many market pundits dampening the rate cut hopes. Stocks from Interest rate sensitive sectors like Auto, Banking and Realty were sold off. Worse than expected results from DLF affected the realty counters further. There was also profit booking in the counters, which rose significantly in the previous week. FIIs sold last week in cash market however in a small way.

At the same time, cement counters were shining because of better than expected consignments. Interim judgment on KG gas favoring Reliance Industries Ltd helped the index major to post gains for the week. Nifty and Sensex ended the week with marginal loses and the breadth of the market was negative.

Week Ahead

Inflation resuming the falling trend and the announcement by RBI head brought back the hopes of another round of rate cuts. As said earlier, US stimulus package brought huge expectations from the markets across the globe. Similarly, interim budget due to be submitted in the coming week will be closely monitored by the market. There are expectations of stimulus measures in the interim budget to revive the economy. There are market expectations that the Nifty range (2700-2900) will be broken this week upwards and the next targets for Nifty are 3050 and 3200 points. At the same time, market may continue to be volatile. Traders may take long positions in Nifty and largecap stocks however with a strict stop loss limit of 2750 points.

With the emerging markets posting gains for the second week in a row, Dollar is expected to weaken against the emerging currencies. Base metals and crude may strengthen based on the US stimulus measures. Gold may weaken in case the stock markets do well.

Wish you a happy week ahead.

Disclaimer: This is only for information and not a recommendation to buy any stocks. Investments in shares are subject to market risks and investments should be on own risk.

Subprime Crisis - An Indian Perspective- Part II

Last week, our stock market suffered one of its worst ever weekly losses.

Investors/traders’ confidence is in shambles now.

Is it a Beginning of an End or End of a Beginning?

Main reasons for such a drastic fall are as under.

Ø Collapse of American Investment Banks.
Ø Delay in passing the “Rescue Bill” by the American Congress.
Ø Sell-off by US Investment Banks in Indian markets.
Ø Nuked Banks coming in the way of approval of Nuclear Deal by the American Congress.

Now, we are in a “Make or Break” situation.

Sensex is very close to its crucial lifeline of 12500 points and it is quite likely that the levels may be tested once again.

Now, the important question is, whether the support line will hold for the third time (in the recent past). Any fall below this line may take the Sensex even to four digit numbers.

Immediate outlook for our market is grim and there are unanswered questions how many more US banks are going to fail in the immediate future and how much more money is going to move out of India. Effectiveness of the rescue measures is also doubtful.

Traders are requested to monitor the market closely and initiate action only, in case, the said support line is firmly held or a positive trigger from US (Both on rescue bill and nuclear deal)

Cements, Infrastructure, Capital Goods and Power stocks will be in demand, in case of approval of Nuclear Bill.

Dalal Street is now looking at Wall Street (which is already in shambles) for further direction.

At the same time, we should remember one thing.

We should not confuse between the impact of collapse of US Investment Banks on our markets and the same on our economy.

Indian economy is not much dependent on USA like our stock market.

Our economic growth is more consumption oriented than being an export (particularly to US) oriented. In fact, fall in US demands will help us in containing our import bill as the prices of crude and other basic goods will come down.

Indian growth is more visible now than ever.

Friends are hereby requested to look at our countryside for the visibility of growth rather than looking only at cities like Mumbai and Bangalore.

Indians are now importing Audi like cars whereas western countries are getting ready to import Maruti (Alto New version) cars from India. This fact should give a lot of confidence upon ourselves.

Changing demography in India has resulted in more Indians thinking how to grow or how to make money. Traditional way of content-life style is not there now.


India will continue to grow, even though, the growth rate may slow down by some extent.

Still, India will be the one among very few countries to have growth in times of a global slow down.

At the same, major threats for our economy will be

Rising Inflation
High Interest Rates
Terrorism
Infrastructure Bottlenecks
Energy Shortage

Solving of these problems should be a priority for us rather than looking at American problems.


I am of the personal view that Investors may now look for picking some stocks of high quality companies , which can withstand the (likely to be) turbulent times in the (for at least) next two years.

There is a saying. “When tide recedes, one can see who is nude and who is not.”

I would also like to suggest investors to pick such high quality stocks, over a period of time and not at one time, to minimize the price risk.

Even though, gold prices may go up in the short run because of the uncertainty/negative trends in equity markets, gold is not considered as a very long-term investment call. Once US economy, rebounds gold may loss its shine.

However, a portion of investment portfolio can be allocated to Gold investments to moderate the portfolio risk.


Rupee faces strong resistance at 47 levels and there have been RBI interventions in the market in support of Rupee. As I already mentioned, Government may not be comfortable above 47 levels and there may be relaxation of ECB/FCCB/FCNR Deposits rules to bring in more dollars. Or, there may be relaxation in exports norms or tighening of import norms.

I would like to conclude that while investing in India, one has to concentrate on its own economic issues rather than looking at others. Let us concentrate on our Indian Companies where our hard earned money is going to be invested.

Let us stop worrying for others as we have our own tasks.



Wish you happy investment times.