RBI’s CREDIT POLICY AND INDIAN STOCK MARKETS

Today the RBI announced its new credit policy. Nothing new. Interest rates were expected to remain the same. And Mr Subba Rao kept status quo. Will it have an impact on stock markets? The markets spooked due to dollar appreciation rather than his announcements and fell by 244 points.

I am more worried of Uncle Bernanke. He sneezes and the world catches a cold. Yes, that’s what I fear. Last time he talked of easing QE2 and Rs fell by 8%. We have still not recovered. US  economic data numbers look better than Indian or Chinese numbers. So, my prognosis is stock market investors will again get a bargain basement sale of good stocks. FIIs will pull out some more money. If you have cash and the stomach to invest, conserve and deploy when Nifty starts correcting by  another 5% or so from current levels.

Your best bet to catch the fluctuations in the market may be ETFs. They will give you a decent return , in fluctuating markets which are directionless. Corporate profits are likely to be muted. Indian government is trying to bring in a slew of measures but they are too little too late. Beleaguered under the weight of scams and scandals, their is a huge trust deficit. The cost of doing business in India for an Indian businessman is too high for the product to remain competitive internationally. For a project of Rs 1000 crores, the cost of sanctions, greasing palms, going through infrastructure bottlenecks and then selling the product is a nightmare for Indian businessmen. The cost of project becomes 1400 crore. A rise of 40%. So a product produced in China at Rs 1000 will cost Rs 1400 to produce in India. How can the business earn profits? We have just replaced the license-quota-permit raj with sanction-commission raj.

No wonder Indian business houses are going out to China, Indonesia, Phillipines , Africa and South America to invest. Anywhere but India. They are creating jobs there, selling their goods there and adding to our GNP but not GDP.

But for stock market investors in Indian markets, patience is the key. We should start turning around in last quarter of FY 2014.

Last year when the government gave out figures of GDP growth, I was a doubting Thomas and had said so in my blog Latest GDP Numbers by CSO in Feb. The final figures were close to what I wrote, the last quarter of FY13 growth was less than 5%. So we have reached almost the nadir. A good monsoon will have a spin-off   post October. This year also we are likely to be close to 5 — 5.2% overall GDP growth.

But elections 2014 may be the game changer. If we elect a strong leader and a party which reaches 273  MPs mark on its own or with support of one ally. We may see a new bull run which will alter our fortunes. In case we end up electing a coalition of a crowd of parties, led by moronic policy makers  then ………..all bets are off.