Current Macro Economic Scenario

Current Macro Economic Scenario

Global Equities have been really undecided in the past few months. Nifty had bounced back from 4600 levels in Dec 2011 to 5600 in Feb 2012 only to fall to 4800 levels in June 2012 and now has recovered till 5200. Comparatively, Dow Jones has been strong reaching back to above 13000 levels. The main triggers for Indian Markets have been the developments in European Debt Crisis, the strength of US recovery compared to an year back, RBI’s fire fighting with inflation and the lack of policy reforms by Govt. Only yesterday, the US Non-farm payrolls have grown highest in last 5 months, depicting a strong recovery in the US economy, at the same time reducing the possibility of QE 3 by Fed. Fed has been repeatedly showing its lack of interest in QE3. US Elections are on the corner, so a few are still hopeful of the quantitative easing.

Brent Crude had crashed to $ 91 from levels of $128. A huge plus for India’s Economy. But the fall in rupee till 55.75 (current) has been negating the positive effect. The brent has now moved to $ 108 again. With rupee still at those precarious levels. Govt. must bring certain policy reforms so that the rupee improves. It needs to be done urgently. Otherwise, fall in crude has been good for economies all over world

The European Debt Crisis has not been showing the signs of cooling down. The Euro at $1.23 shows that. The yields on bonds of weak European Economies are still hovering at a higher levels. Although I feel, the markets have priced in Greek default, but what will happen aftermath of the default, is very uncertain. Markets may not be prepared for it. Comex Gold has been steadying in around $1600 in a last couple of months. I believe, it is more on bearish side.

On domestic side, monsoon has been poor, hence there will be further downside pressure on our GDP Growth rate. In my opinion , our growth rate will most probably remain above 6%. RBI is still not going for aggressive repo rate cuts. It is more of banking on Government to take policy measures, good in a sense. Till the inflation is controlled, RBI will not go for aggressive rate cuts. But it’s almost a surety that they should start in 4-6 months.

Commodity prices have come off, inflation is coming down, interest rates will come down aggressively, adding to it, on US Front, the recovery in US economy , US Elections , these are the few reasons, I believe, Nifty to reach 5500 in next 6 months. On the downside, I feel Nifty has built a floor at 4700-4800 levels, it will need a much bigger event to break those levels convincingly.