Dear Niveshaks,

It’s back to February, the month of Union Budget. As the day of budget is approaching, expectations of the industry and common man have started to build up regarding the various policy measures that government will take to alleviate the various problems that our economy is facing currently. The Indian economy with sinking stocks, skyrocketing inflation and moribund industrial output certainly doesn’t present a rosy picture and the Finance Minister, Mr. Pranab Mukherjee has a tough task ahead in tackling all these issues. Clearly, the biggest of these issues is the inflation, particularly that of food items. Although, the food inflation has eased a bit in early February, it still remains at a high double digit. The RBI has raised short term interest rates seven times since the last budget and is expected to do so for the eighth time in the coming March. While the monetary measures didn’t help much in controlling the supply side driven inflation, it certainly had its effect on the industrial output which has fallen to a very low level as indicated by the latest IIP numbers. The corrective policy measures taken by the government to balance growth with the inflation will be something to watch out for in this budget. Another major issue to watch out for will be the diesel price deregulation. The petrol price deregulation that the government undertook last year helped in reducing the fiscal deficit and minimizing the losses of oil marketing companies. But it is the prices of diesel that constitutes a major share of fuel subsidy bill and hence a diesel price decontrol is urgently needed in order to reduce the fiscal deficit. However, given the current inflationary environment, the step seems to be difficult.

The month of February has been one of the worst for the Indian stock market in the recent times. The benchmark Sensex fell to its seven month low on February 11 before recovering from the shocks of Egypt crisis and weak IIP numbers. Just three months ago, when the US government had announced its monetary easing policy, financial experts had predicted a tsunami of foreign fund inflows leading to a rise in the stock markets in emerging countries. However, nothing of that sort has happened till now. Infact, the foreign institutional investors who had pumped close to 29 billion dollars in 2010 have already withdrawn 1.4 billion dollars from the Indian markets this year till the mid of February. If trends are to be believed, then the Indian stock markets are headed south. However, we all know the inexactness of stock market forecasts and it would be interesting to find out the direction of stock markets in the coming months.

A major issue that dominated the headlines this month was the Egypt crisis. This month’s cover story goes deep into what went wrong in Egypt and the effect it is having on the rest of world. The “Article of Month” is on the burning issue of inflation and the measures government should take in order to control the same. The present issue also features an article on MNREGA, the impact it had and the way ahead. Another interesting article in this issue is on Islamic Banking, issues and concerns surrounding it and the benefits of adopting it in India. Finally, don’t miss the interview of Mr. Himadri Bhattacharya (Executive Vice President at Tata Capital) where he shares his views on varied issues such as the Euro crisis, inflation and the things to watch out for in global and Indian economy in the year ahead.

Stay invested.