ithought market wrap No.47, 14 Sep 2011

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The battle against inflation waged by the Government translates into a battle with interest rates for the consumer. Home loans have ensured that inflation pinches every pocket and distorts disposable incomes severely. Those with more than one loan are really in a squeeze as their EMI’s are not even covering interest and need to be raised immediately. This raises serious worries on how long investors carrying debt against their homes can hold onto these assets. Any further hike in interest rates may well queer the pitch in home sales and the realty industry may suddenly become severely strapped for liquidity. The inflation data released on Friday show little signs of thawing and raises fears of another rate hike. The RBI has clearly hinted that unless there is a decisive climb down in inflation they will need to raise rates. Meanwhile, the banking industry is trying to posture that this may not occur. Hope seems to be running out.


The results season started with very little expectations. The earnings downgrade by brokerages has lowered expectations. When Infosys upgraded its earnings estimates, a hungry market overlooked the revenue downgrade issued by INFY. The coming week will see more results from blue chips, Our sense is that the markets will discount the results quickly and move on. The week saw prices of stocks, oil and gold climb up. The coming weeks will see the Indian markets strike a balance between domestic and global worries. The markets are clearly showing signs of negative fatigue. Investors seem to be tiring of staying pessimistic and watching the markets hold without falling any further. This fatigue seems to be showing in some bottom fishing or short covering or both.


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