Niveshak May 2011 Issue

Thursday, June 2, 2011 , Posted by Team Niveshak at Thursday, June 02, 2011

Dear Niveshaks,

The dull and mixed result season has come to an end amidst a month which saw results of five assembly elections, RBI raising interest rates by 50 basis points and the petrol prices being increased by Rs. 5 per litre. The increase in petrol price, which the oil firms had been holding since January even though crude oil had touched a two-and-a-half-year high, came a day after election results of five state assemblies were announced. This is the eighth hike in petrol price since the June 2010 decision of deregulating the petrol price. The rate increase by RBI which was more than expected caused both stock and bond markets to decline on fears of lesser than expected growth in GDP due to tough interest rate scenario. The headline inflation has eased a bit in April due to lower manufacturing prices but the prospect of rising energy costs will keep pressure on the RBI to raise rates going ahead. The wholesale price index, the country’s main inflation gauge, rose an annual 8.66 percent in April, above the median forecast of 8.48 percent rise. However, the softening of inflation seems temporary as the hike in diesel and LPG is likely to be announced by the OMC’s in the coming weeks to reduce their under-recoveries.
The stock markets which posted smart gains in March 2011 on expectations of good Q4 FY11 results, slid down recently due to disappointing corporate earnings results, rising inflation and the most recent one being the RBI’s aggressive rate hike with a view to curb inflation. The fall in the markets was exacerbated by the continued FII selling due to concerns over the impact of the rate hikes on the overall growth. The RBI move to hike rates by 50 bps is a departure from its calibrated approach in recent times and should help in taming inflationary pressures. This move which is expected to put some pressure on the GDP for FY12 could cause some near term pain to the markets due to the concerns over slowdown in growth. However, the proactive move was warranted considering the spiralling inflation in India. Events which could have a bearing on inflation would be the monsoon forecast and the end of the quantitative easing (QE2) in June which could see a dollar rebound and consequent cool off in commodity prices.
This issue brings to you some more interesting and insightful topics. The cover story this month focuses on the big news of this month – the death of Osama and its impact on financial world in general. The article of the month explores the history of world’s second strongest currency Euro , what went wrong with it and how the wrongs can be corrected. Another article in this issue focuses on the importance of SHG’s and their role in ‘Banking the Unbanked’ in the country . The issue also features an article on the current state of Indian debt market and the way it can improve going in the future for corporates to be able to use it effectively to raise funds quickly and fuel their growth. Lastly, the Classroom this month explains the topic of ETF’s.
Hope you find the issue an interesting read.

Stay invested.
Rajat Sethia
(Editor -Niveshak)

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