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Asian stocks, inflation concerns & more... - Views on News from Equitymaster

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  • Jul 28, 2008

    Asian stocks, inflation concerns & more...

    Crude worries easing...
    Asian markets are all trading strong this morning on the back of gains in commodity stocks. These markets are also possibly taking cues from the positive close in the US markets last Friday, which were buoyed after the US Senate passed a housing bill that aims to help borrowers, bolster the housing market and act as a rescue plan for the troubled mortgage finance giants Fannie Mae and Freddie Mac. Meanwhile, crude oil is trading near its seven week lows on the back of signs that the Organisation of Petroleum Exporting Countries (OPEC) is shoring up output while fuel use in the US and emerging Asia is dropping. Oil prices have in fact tumbled about US$ 24 per barrel from the record US$ 147 per barrel it reached on July 11.

    As reported, OPEC will provide 32.9 m barrels a day of oil this month, up 200,000 barrels from June. The 13-member group produces more than 40% of the world's oil. Saudi Arabia, a key producer from the OPEC, in response to calls from consuming nations, said it would produce an extra 300,000 barrels a day in June and a further 200,000 barrels a day in July to curb prices.

    ...though inflation concerns in India continue
    "With an expansionary fiscal policy and rising risks of second-round effects of inflation, we expect further monetary policy tightening to tame inflation, but only at the cost of slowing GDP growth," says a report from the global investment house, Lehman Brothers. It has also raised concerns that the rising twin deficits - fiscal and current account - can weigh heavy on India's economic prospects going forward. Further, expressing concerns over fall in industrial production, which touched 4% mark in May, the global investment bank has said that "The top priority of the government would be to tame the high inflation rate, which we expect will continue to remain in double-digits until the first quarter of next year."

  • Also read - Are RBI's moves playing havoc with banks?

    In the meanwhile, Bloomberg reports that the Reserve Bank of India (RBI) is expected to raise interest rates for the third time in less than two months, when it meets for the quarterly review of the monetary policy tomorrow (July 29). This view is on the back of rising inflation in the economy (currently at 11.89%) even as the government has taken measures like cutting import duties on edible oil, steel products and oil. The government also recently banned export of food products like corn, pulses, rice, wheat and edible oil to spur local supplies.

    The effect of rising inflation and dropping stock prices is amply seen in banking companies' performance. India's second largest bank, ICICI Bank, for instance reported a 6% YoY decline in net profit for the April to June 2008 quarter. This has been on the back of a 10% decline in the bank's other income as its investments slumped on falling bond prices (due to rising interest rates; bond prices move inversely to interest rates). The bank is also facing issue on the loan recovery front, as seen from the rise in it net NPAs (non performing assets) to 1.8%, from 1.6% in the previous quarter.

  • Also read - ICICI Banks' worries beyond costs


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