ithought market wrap No. 52, Dated 18 Nov 2011

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The Stock Market had a whitewash this week. It went down every single day. The bulls who trade had a tough time. Selling seems the simplest way to make money. Anything you sell goes down the next day. This rather predictable behavior of stocks has emboldened sellers and scared buyers away. The global cues look hardly inspiring. Domestic macro indicators look depressing. Infrastructure related sectors like aviation, power and roads are struggling. Liquidity is extremely tight and interest is killing profits. In this gloomy and dark scenario, policy initiatives are what will change the mood. The mood is what needs to change. The fundamentals will anyway get better over time. The government is seized of the urgent need to send the right signals. FDI relaxation seems like the next big ticket move. Looks like reforms always happen only when we are in a crisis. This time is no different.

Four factors remain a concern for the stock markets. Trade data, inflation, liquidity and exchange rates remain the prime worries of the government. The trade deficit threatens to hurt us like never before as our exports are struggling while our imports are growing. Liquidity has been extremely tight during the past few weeks and the markets anxiously await RBI’s response. Food inflation remains a major worry. The rupee’s weakness against the dollar is persistent and threatens to hurt even more. The exporters are in no hurry to sell their gold while importer demand for dollars is strong and stable. This will only further weakens the rupee unless we see some strong policy moves from the government and RBI. Overall, the past few weeks have seen the country’s fundamentals look increasingly weaker with no tangible solution in sight for the macro economic issues that are pressing and urgent. Yet, the hunt for solutions may well have begun.

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