Skip to main content

Investors see little to cheer

(The Hindu Business Line 23 June 2008)As the markets open for trading this week, the cup of woes for Indian stock investors is surely brimming over: Double-digit inflation, the possibility of further interest rate hikes, a fiscal situation which is being bent out of shape by oil prices, the possibility of a political fracture over the nuclear deal.
To top it all, weak global cues — with the Dow shedding over 200 points at the close last week!
The tentative recovery forged by the Sensex in mid-May, when it ventured past the 17,000 mark, has been decisively nipped in the bud in recent weeks. No surprise
The market’s failure to break away from its recent losing streak isn’t surprising, given the deluge of negative news flow on the economy and thus, corporate earnings, in recent weeks.
Spiralling commodity prices represent a potent threat to earnings growth for India Inc in the coming quarters.
Companies in sectors ranging from capital goods to automobiles are already feeling the heat on their margins from rising input costs and slackening growth over the past two quarters. Confidence dented
With inflation at a 13-year high, after the recent fuel price hikes, confidence that all is well with the Indian consumer is also beginning to wane.
High inflation in food and fuel prices raises concerns that the slowdown in demand, now restricted to big ticket purchases such as cars and homes, may also trickle down to other consumer goods.
With inflation so high on the government’s radar, relief on interest rates for India Inc also seems a good way away.
With mounting pressure on the government to curb runaway prices, market watchers are actively betting on at least one, if not more, rounds of interest rate increases over the next few weeks. This could effectively delay recovery in much battered sectors such as banking, realty and automobiles.
However, there are still a few slivers of hope for optimists. A good monsoon (current indications are, it will be) can not only peg up agricultural output and help GDP growth, it can effectively quell inflation in food and edible oils, a key villain in the recent price episode. Commodity ‘bubble’?
The market is also evenly divided on whether the recent commodity spiral is a “bubble” or a “structural” change. Stock market investors should probably pray for it to be the former.
A correction in commodity and thus crude oil prices would be just what India Inc needs to make its escape from the vicious cycle of high inflation and higher interest rates.
For investors looking for cues to stock market direction, how the scenario on crude oil and the commodity pack plays out now holds the key to every other question.

Comments

Popular posts from this blog

RBS picks up 0.60% stake in Gateway Distriparks

The Royal Bank of Scotland (RBS) has picked up 0.60% stake in logistic services provider -- Gateway Distriparks. The bank has bought 6.40 lakh shares in the company for a total consideration of Rs 8.32 crore. Gateway Distriparks, incorporated in 1994, is engaged in the business of warehousing, container freight stations, providing handling and clearance of sea borne export-import trade in containerized form.

Day End Report

The Sensex opened with a huge downward gap of 250 points at 13,856, and soon touched a low of 13,731. Another rise in repo rate and Cash Reserve Ratio by the RBI sparked off heavy sell-off in opening trades. However, fresh buying at lower levels helped the index recover all its losses by mid noon trades. A fresh round of buying in late trades saw the index surge to a high of 14,249 - up 518 points from the days low. The Sensex finally settled with a gain of 113 points at 14,220. The NSE Nifty ended with a gain of 60 points at 4,251. The market breadth was marginally positive- out of 2707 stocks traded, 1,370 advanced, 1,264 declined and 73 were unchanged today. Reliance Communications (RCom) zoomed 7.2% at Rs 509. Tata Steel surged 4.5% at Rs 743. DLF and Reliance Infra gained 4.2% each at Rs 458 and Rs 945, respectively. TCS and Bharti Airtel advanced 4% each at Rs 877 and Rs 780, respectively. Ranbaxy was up 3.8% at Rs 545. BHEL gained 3.7% at Rs 1,442. Reliance advanced 3.4% to Rs 2...

Auto industry records highest-ever sales in Jan

Riding on the back of economic growth, easy availability of finance and the continuing fiscal stimulus, the domestic auto industry has posted the highest ever monthly sales in January. The strong growth is both in terms of passenger car volumes and the total vehicle sales. According to Society of Automobile Manufacturers (SIAM) data, the passenger car segment has posted a 32 per cent growth in domestic sales at 145,905 units in January, over the same month last year. The last highest-ever monthly sales in the segment were in March 2009, when it sold 129,358 units. Meanwhile, overall sales across the industry grew 45 per cent at 1,114,157 units. The earlier record of highest ever monthly sales was in October 2006, when the industry had sold 1,017,198 units. Individually, the umbrella passenger vehicle segment posted a 37 per cent growth, while the commercial vehicle (CV) segment grew 131 per cent. Also, the two-wheeler and three-wheeler segments rose 43 and 47 per cent, respectively.