The Hindu Business Line : Economy, capital market recovery likely from Apr-June

Kochi, Dec. 25 The Indian economy and capital markets could begin to stage some early recovery from the second quarter of 2009, but this would be on the back of an exceptionally poor result season during the first quarter.

However, the export-oriented sector would continue to be battered by the strengthening rupee and the impacts from a persistent global slowdown which, in turn, is expected to curb global demand, Mr C.J. George, Managing Director of Geojit Financial Services Ltd, said.

Principal drivers

The principal drivers of growth are expected to come from a moderation of the inflationary spiral to 3-4 per cent, which is expected to bring down interest rates to 6-7 per cent by the middle of next year. The monetary and financial measures initiated by the Government have already begun to yield results and the liquidity crisis has begun to ease, Mr George said.

Growth Base

It was the low-inflation low-interest rate regime of 2001-03 that laid the foundation for the accelerated economic growth of the recent past. But there is a paradox in the market, Mr George added.

Recent history shows that retail investors were always the last to leave from a battered bear market and the last to enter a strengthening bull market. But this time, retail investors have begun to flock back to the stock markets to pick good value stocks at low prices, said the Managing Director of Geojit Financial Services.

This bottom-fishing is equally in evidence in non-metro centres and semi-urban India. It could either mean that the end of the bear phase is still not over or that the Indian retail investor has matured and has begun to come of age. Market analysts believe that the latter situation is more likely, he said.

Inflation spiral

Going by the trends from the semi-urban and rural branch network of some broking companies, the overall economic slowdown had the least impact on rural and semi-urban population, said Mr George. However, the inflationary spiral had a more telling impact. But even that has begun to ease as revised salary scale for Central Government employees and farm loan waiver injected more liquidity into rural India. This has already begun to manifest in the slow revival of retail demand for equity from rural and semi-urban India, he said.

Commodity futures

The advent of commodity futures and options has also created a financial consciousness among the bigger farmers and traders of rural India. This has also extended the reach of some stock broking firms into rural India. As commodity markets begin to wilt and equity market gains strength, some rural farmers and traders have shifted focus to capital markets, Mr George added.

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