Picking Up Pace
11/22/2010 12:46 PM Monday
The Indian market has come very close to its previous high and is continuing to hover around that level. A similar pattern is being displayed by the Brazilian stock market. Other exchanges that have scaled new heights include Malaysia, Mexico and Indonesia. Compared to their respective high levels recorded around 2008, the Malaysian Exchange has just crossed that point, the Mexican stock market has increased by about 10 per cent while the recent gains recorded by the Indonesian Exchange has seen the previous figure go up by 30 per cent. The above analysis is in terms of local currencies and many of these outperforming exchanges are smaller than the Indian bourses. On the other hand, although the Indian stocks have outperformed many of the emerging markets, their performance is still not the best. So far, the results have broadly been in line with the expectations however they suggest that we are heading for a set of mixed numbers. Very few companies have surprised the market with their results. Nevertheless, market response to the current encouraging results suggests that there are certain other factors weighing on the minds of the investors.
By and large, the investing fraternity is convinced that share prices are being driven by liquidity flows. The macro economic issues are engaging the attention of the investors. Global liquidity flows, currency wars and protectionism are likely to have a significant impact on the Indian bourses. No doubt, the steps taken by the government to manage the economic challenges will be watched closely by the investors. Inflation is expected to be moderate in view of the good monsoons. There could be an easier trend for some of the agricultural produce. However, domestic prices of commodities like metal and various industrial inputs are now largely determined by their cost in the international markets. In view of the high liquidity in the international markets, the inflation scenario is not expected to be benign. Commodity prices have witnessed large fluctuations over the last few years and this volatility is likely to continue, thereby affecting the fortunes of these sectors. In its last policy statement, the RBI did suggest its seriousness about controlling inflation. The repo and reverse repo rates were revised upwards.
The RBI also made clear that it is not likely to raise the interest rates in the near foreseeable future. With a strong demand for credit and a tight liquidity situation, interest rates may not soften.
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