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Wall of worries - Views on News from Equitymaster
 
 
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  • Mar 30, 2002

    Wall of worries

    The bourses continued to display sluggishness for the third consecutive week. Lack of positive indicators, both economic as well as political have hit sentiment. A lacklustre Wall Street is not helping either. With India clocking nearly 6% of GDP as fiscal deficit in FY02, the going is likely to get tough in FY03.

    Apart from the fluid domestic political situation, escalation of tensions in the Gaza strip is likely to add to the pessimism in the markets. Oil prices have already strengthened in the last couple of months. With Israel-Palestine spat showing no signs of de-escalation, oil prices may strengthen even further. Oil prices have also been on the rise in light of low inventory with the US. In this scenario, inflation is likely to head north in India, and the government’s plan of a softer interest rate regime may go for a toss (in the near term).

    The FM has already rolled back part of the LPG hike as well as the cap on investments in RBI Relief Bonds for retirees. There are also enough indications that more rollbacks are in the offing. With the government itself wavering, there are question marks over the continuity of the government’s stated policy. It is based on the government’s stated policy that the citizens plan for future. If the stated policies are tampered with every now and then, what planning can one do? And all this also affects the investment patterns.

    With markets still looking for signs of a rural recovery, sentiment is likely to be range bound. But it needs to be mentioned that the Indian economy grew by 6.3% in 3QFY02 (twice that of the corresponding period last year). This was primarily led by the farm sector that grew by close to 7%. Though recent data has shown encouraging signs for sectors like cement, auto and commodities, much of it has already been built into the valuations. The same is true for the PSU divestment hopefuls.

    Though there is no doubt that at below 3,500 levels, the Sensex does have enough steam left to plough ahead, but that is a factor of further improvement in earnings visibility of corporate India as well as political stability at the centre. Already regional coalition parties have started to disintegrate from the NDA. More importantly, it is the long-term economic policy of the Indian state that will determine the course for bourses in 2002.

     

     

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