Kudos to July… - Amar Ranu1

Finally July brought some mark of respite amid a bleeding market which has lost all the hopes of recoveries. The political drama on the risk of floor test turned positive for UPA government under the blame of horse trading for our esteemed MPs who were sold for as high as Rs 25 crores, if we believe the grapevine. The old man Shri L K Advani won’t be a happy person as he lost the hope of becoming the Prime Minister even at 82.

The stock market which nosedived overall on account of global cues celebrated the departure of the leftist parties from the ruling arrangement with a spurt of 615 points in the Sensex before worries over the economic realities are over. Sans Left, the UPA would take a lead step in fulfilling its unfinished economic reforms which is a long story to watch.

The dismal IIP numbers begot the gloomy picture of Indian bourses to a large extent. The IIP growth dropped sharply to 3.8 per cent in May 2008 compared to 10.6 per cent in May 2007. Capital goods growth dropped to 2.5 per cent in 2008 as compared to 22.4 % in 2007. The world markets hovered on crude oil prices which forced the global majors to retort to its tone. Current pandemonium in oil prices is mainly attributed to the unregulated Over-The-Counter markets and futures trading in oil. Even though the prices have eased after the OPEC president vowed to bring down the price to $ 100 per barrel by increasing the productivity, it could not bring many cheers to the global bourses. India ratings have already been downgraded by Fitch and S & P has also pointed towards a downgrade from India’s “Stable grade” to “Speculative grade” based on widening current account deficit, fiscal deficit and spiraling inflation.

Despite a subdued note on macro-economic factors and RBI’s first quarter Credit Policy, the SENSEX and NIFTY reacted sharply on a series of events sometimes on global cues also as India now seems coupled with the globalised world. The bourses Sensex and Nifty ended with a net positive adding an absolute gain of 10.76 per cent and 11.19 per cent respectively for the month July 2008. The month saw a lot of volatility amid a series of episodes, not to overlook the RBI monetary measures. The ex-ante GDP growth rate below 8 per cent, rising interest rate, spiraling inflation and tight monetary policy have combined to force the elephant on a slow-track. The inflation which eased surprisingly from its high again soared to 11.98 per cent despite the assurance from the big R, Dr Y V Reddy. A series of Repo rate and CRR hikes could not bring any cheer to the inflation. Surely the reflections would be replicated in the coming weeks which could see another hike if the sentiments did not improve as declared by big R.

1 An independent columnist and writes for different websites and magazines on financial domain. He can be reached at amarranu@yahoo.com.

The biggest surprise was the BSE PSU Index which added the maximum gain of 22.78 per cent. The interest rate sensitive indexes such as Bankex, Realty and Auto Index which were hit badly in June showed good sign of respite. The Bankex gained 16.71% in July 2008 despite the sucking of its liquidity by RBI under CRR and Repo rate hikes. The BSE Realty Index gained 20.47 per cent. Heavy weights like SBI, ICICI Bank etc showed some whooping foreign exchange losses in terms of MTM. The Pharmaceutical sector ended with a modest gain of 2.16% due to heavy MTM losses shown by its bellwether Ranbaxy. The worst number in the midst of rosy performance of July 2008 was shown by IT sector. BSE Teck Index ended with a meager gain of 1.69% while CNX IT Sector Index ended in net loss of 3.93 per cent. On the debt front, the money market rates eased amid ample liquidity in the system. The interest rate hikes have already pushed G Securities closing past 9.2 per cent. The AAA corporate bond yields have already breached 11 per cent. Amid such a choppy movement, the retail investors are left bleeding with no hedging on the back. Their portfolios which have already plummeted to 50 per cent from its high should turn to FMPs and Liquid Plus which are giving smart returns of 10 plus and 9 plus per cent respectively.