Inflation and the government

It has been long since my last post - however things have remained volatile on the bourses. This post discusses in brief the major changes in India polit

Bull runs have been intermittent, ebbed away by the larger bear market and profit bookings. Oil prices have taken a dip but has not impacted the stock markets significantly (except for oil intensive industries such as airlines etc).

On the other hand the UPA govt seemed strong and healthy after sweeping the vote of confidence; people seemed to believe that without the nagging left support reforms were round the corner. Much to our disappointment things turned out not-so-bright for the bulls. With Lok Sabha elections close by it is tough for the UPA govt to bring major reforms in the economy. To add fuel to fire, the inflation number have peaked their fourteen year high. Interestingly, the government has hardly taken any steps to contain the inflation, but rather adopted populist economic (or political!) policies. The forgoing of 60,000 crores of loan to the farmers have hardly impacted the needy farmers (they are unable to avail loans - as rural loan policies are dictated by local politics in each state) but have added to inflationary pressure. The avg hike of 21% of central govt employees (through the 1oth pay commission) was a kind of trade off. This would further add 30000 crores into economy thereby driving inflation higher. Only occasional interest rate hikes by RBI has failed miserably. In fact the worst is yet to come so far as inflation numbers are concerned.

I would attribute the bear market largely to the global credit crisis - the FII investments have been diminishing since the January crisis. Its only when these subside, that the Indian markets would take off. The losses incurred by various financial institutions will be accounted across a number of quarters (as I had already mentioned). Thus, we may see more institutions going bankrupt in near future. However, I do believe that the Indian growth story is intact and the very fact that the Indian equity is now trading at a lower P/E than the Chinese counterpart - the reversal / recovery would be faster on Indian bourses. Value picks and long term investments are tick of the day.