Business Daily from THE HINDU group of publications
Monday, Sep 11, 2006
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Business Daily from THE HINDU group of publications Monday, Sep 11, 2006 ePaper |
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Markets - Outlook Columns - A Ringside View Jayanta Mallick
Firm finish: A stock dealer delighted with the upward move of the market last week. - Paul Noronha Indian equities are likely to draw overseas funds' attention in the short term as global fears over further hardening of interest rates get reduced significantly. Signals from the FIIs circles suggest that the overall inflow into domestic stocks may be positive this week, particularly in the mid-cap stocks. The Wall Street consensus is that the Fed will pause again to further assess economic growth and inflation prospects. Most economists believe that the Fed will start cutting rates in 2007 due to an economic slowdown spearheaded by a crumbling housing market. Some experts appear to be of the view that US could face an extended period of stagnation in the real estate values, if not a reversal in housing prices. However, certain observers took heart from the fact that the US economy has become less reliant on housing wealth due to the recent upturn in labour income. Inflationary fears, however, are likely to be mitigated by an anticipated softness in retail sales. The weakness in auto sales is expected to cause a dent in the US headline inflation figure for August. The implication is the largest economy's consumer sector is still holding fairly well. Even as global investors keep an eye on the upcoming week's market-moving US economic reports, on consumer prices (in the backdrop of recent fall in energy prices), trade balance and retail sales, money flow towards select emerging markets including India may continue to be steady on relative strength and strategic compulsions.
Domestic discomfort
The economic dynamics are, however, forcing policymakers for applying brakes in terms of inflation and interest rates. Anecdotal evidence suggests that banks have started slowing their lending growth since July. Aggregate credit growth also witnessed marginal deceleration in July. Floods in six States, more and more terrorist acts and political compulsion are also putting pressure on priorities. In this backdrop, it is interesting to note the short-term differences in strategies adopted by the overseas investors and the domestic investors. The local mutual funds have turned distinctly negative in their net investments in September. The FIIs, on the contrary, continue to be positive. Mutual funds were in the positive in August after pulling out money in two consecutive months - July and June. For FIIs, May had been the last net negative investment month. While the legacy of past financial market scams still haunts the market, the writing on the wall indicates nothing but further liberalization (full convertibility in five years). Dalal Street does not expect any negative surprise in corporate earnings in the second quarter. But the debate is on over the earnings growth over the next two quarters of the fiscal. It is still not clear how the Government would balance the growth pace with control of inflation. A consensus is also absent regarding foreign portfolio investment flow and its role in supply of overall liquidity. Things may become clearer in the coming weeks and after October 31 RBI meeting, the trend for the medium term should firmly be in place.
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