Markets Free Fall: Despite of RBI rate cut & low Infaltion

Tackling the global finacial meltdown , RBI yestrday came with the move of cutting repo rate and reverse repo rate by 50 bs points. Currently Repo Rate ( the rate at which RBI lends to commercial banks) stands at 5% and Reverse Repo rate ( the rate at which banks lend to RBI) stands at 3.5%.

The move was taken in view to ease lending rates for corporate india and individiual borrowers in order to create demand in economy. however markets responded negatively to this move by plunging in red , falling by 261.14 points ending at 8185.35. lot of selling pressure came in from largecap stocks all making new 52 weeks low.

Even low inflation numbers couldnt turn up the market sentiments. Inflation came down to 3.03% for the week ended feburary 21.

Renewed FII selling is taking our markets down. However, next week a global rally can be expected as the US markets are in the highly oversold zone.

Inflation slided to 3.92%

Inflation eased to a 13-month low of 3.92% for the week ended February 7 on the back of a sharp fall in the prices of edible oils and
manufactured products. An ET poll had forecast that the inflation would fall to 3.91% for the week from 4.38% in the week before and 4.97% in the corresponding week last year. Inflation based on the wholesale price index has eased sharply from a 16-year peak of 12.91% in August 2008, due to a sharp fall in commodity prices
and a slowing demand. The drop in inflation has led to renewed calls for aggressive rate cuts to boost the flagging economy.

Low Inflation Offset by Low IIP numbers

The lower inflation numbers failed to boost sentiment in the markets, which were dragged by the negative industrial numbers. The Sensex remained in the negative territory amid weak Asian markets.
The Sensex was down 62 points at 9556 levels.
The rate sensitive sectors realty, auto and banking stocks were mostly in the green in anticipation of a rate cut by the RBI. On the other hand, metals, IT and oil & gas stocks dragged the benchmark index.
The industrial production for December contracted by 2 per cent, as compared to 8.6 per cent growth a year earlier. The fall was led by a led by a 2.5 per cent contraction in the manufacturing output. Inflation for the week ended January 31 was at 4.39 per cent as compared to 5.07 per cent a week earlier

Soruce : NDTV Profit

Inflation at 5.07% on Jan 24

IInflation for the week ended Jan 24 slipped to 5.07% from 5.64% as prices of food items eased after rising for two consecutive weeks.

This was lower than a forecast 5.21 per cent in the wholesale price index in the 12 months to Jan. 24, compared with 5.64 per cent in the previous week. It would be the slowest annual rise since Feb 9 last year when inflation was at 4.98 per cent. Inflation had fallen to an 11-month low of 5.24 per cent on Jan. 3, but it rose in the next two weeks following an eight-day nationwide truckers' strike that pushed up food prices.

source: Economic Times

Gold Prices shot up to Rs 14, 175

Gold prices shot up by Rs 435 per 10 grams to a new peak of Rs 14,175 on the bullion market in Mumbai on Thursday following renewed buying from stockists and investors on the back of firm trend in global markets.
Silver also moved up in line with gold prices as well as renewed industrial inquiries.
Volatility in other assets that forced investors to park their funds in precious metals as a safe investment also boosted the prices of these metals.
Gold strengthened more than two per cent in Europe to a three-month high, as investors preferred to invest in the metal from the current uncertain scenario.
According to market perception, China taking an interest in gold as an alternative to U S Treasuries, and of a European fund buying bullion, also influenced the prices. Spot gold climbed to a high of $926.10 an ounce and was quoted at $918.50/920.50 an ounce up from $906.75 in New York late on Thursday.
Gold futures rebounced in New York after two sessions to above $900 an ounce as gloomy economic news in the US triggered safe-haven buying.
Gold for February delivery ended up by $16.90 an ounce to $905.10 on the Comex division of the New York Mercantile Exchange. March silver also rose to $12.145 an ounce. Gold was rising as "economic malaise continues to batter the world", a dealer said.
Turning to the domestic market, standard gold (99.5 purity) shot up by Rs 435 per ten grams to Rs 14,175 from Thursday’s closing level of Rs 13,740. Pure gold (99.9 purity) also rose to Rs 14,240 from Rs 13,805.
Silver ready (.999 fineness) jumped by Rs 575 per kilo to Rs 19,795 from Rs 19,220 on Thursday.

source : NDTV PROFIT

Happy –go –lucky times for oil companies

Kabhi khushi, kabhi gam….do not worry I am not changing my blog name- well this quote is for Indian oil companies who faced lot of gam and now its time for them to have some khushi.

In the present era new synonyms that are continuing to be associated with high oil prices are, global turmoil, high inflation, crashing stock markets, rising food prices, weakening of dollar and many more. Few days back prices of oil have reported a hike of $ 139 a barrel and according to estimations can reach $ 150 by July because of ever increasing demand and political tautness.
However now we witness a change in the trend- in September 2008 oil prices are near $ 109 a barrel due to falling demand from major oil consuming countries against hurricane threats to the US oil sector. This fall in oil prices has shown a sign of relief for India Inc, in times when India is suffering from lot of macroeconomic instability.

Let me here try to explain this whole phenomenon of rise in crude oil prices:
Crude oil is regarded as an element that is required for all commercial and residential purposes. In order to ensure that we have enough crude oil for our needs certain amount of money is paid to the countries from which oil is imported. These companies have a set crude oil price. The unit in which crude prices are measured is based on barrel production amount. The companies from which oil is imported can only drill certain amount of oil from drilling fields, due to this the most famous law of demand comes in to play i.e. lower the production , higher will be the price of oil. Oil prices are defined in dollars for most of the oil exporters. There is a vicious cycle of higher oil prices which leads to higher trade deficits, which in turn leads to weakening of dollar and again leading to higher oil prices. In order to explain this phenomenon lets start with rising oil prices. Suppose in the initial years rise in price of oil can be attributed to the following factors:
· Increase in demand for oil from emerging economies like China and India.
· Supply breakdown from Iraq, Nigeria, Venezuela, Russia and US Gulf coast.
· A terrorism / war premium
· Buying by traders speculating that oil prices would rise.
Now since US imports oil, now with the advent of rise in oil prices, trade deficit of US – the difference between the cost of imports and export, will increase. This is where the vicious cycle comes in; every dollar increase in the price of a barrel of imported oil increases the size of the U.S trade deficit. This is due to the fact that oil is priced in dollars in global market. Now this increased trade deficit will put pressure on the dollar which will make it weaker further, this in turn makes OPEC countries to raise dollar – denominated price of barrel of oil to make up for the dollars fall and so on.
So this is the story of rising oil prices. Now since oil is pegged in dollars, India was badly hit by rise in its prices.

Now due to slowing of demand leading to fall in prices of oil has started showing some positive sentiments on Indian stock exchange. Another relief comes in for central banks as easing of pressures on hike of interest rates. According to finance ministry we may soon witness single digit inflation numbers, which is the essential need of the hour.
Moreover if oil comes below $100 a barrel on a consistent basis, the fisc should easily self-correct by over 1% of GDP. With macro indicators improving, the next challenge will be to ensure that growth does not fall below 7.5-8%.

New sign on indian currency notes

Well after giving you such big write-ups which i know is hard to read in now busy days , i thought why should not i share this interesting piece of news with you !

From September 5th onwards our currency notes will have new sign of Dr Duvvuri Subbarao. He will assume charge as governer of RBI when office holder Yaga Venugopal Reddy's 5 year tenure ends.

What excited me to write about this news was his qualifications ( you must have guessed it by blog name) .

• IAS topper of 1972 batch
• alumini of IIT Kanpur ( physics graduate)
• completed MS in economics from Ohio state university
• completed phd. economics from Andhra university

Another attraction in his biodata is that he has worked with world bank as lead economist for 5 years and has worked in our finance ministry in the intial phases of reforms of 1990's under manmohan singh as finance minister.

But from here work for our new governer becomes tough and challenging in scenario of double digit inflation , slowdown of growth , forthcoming election year and pending reforms in finacial sector.

Lets hope he meets all these challanges . All the best wishes and till then we wait to see new signature on currency notes!