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Jittery trade

Updated on: 22 August,2011 07:15 AM IST  | 
Alex K Mathews |

Extremely negative cues in the global arena drove the markets down to almost 4.5 per cent last week. The markets opened on a downside note

Jittery trade

Extremely negative cues in the global arena drove the markets down to almost 4.5 per cent last week. The markets opened on a downside note. A minor recovery was seen last Wednesday but, later the markets crashed breaking all major support levels. Growing fear over weakening global economies was evident from massive selling across the globe and shift of funds towards precious metals. In the case of gold, the price shot up around $131.25 or 7.51 per cent during the previous week. The monthly inflation number was at 9.22 per cent in July against 9.44 per cent in the previous month. The weekly food inflation number also eased to 9.03 per cent against 9.9 per cent.

But the Finance Ministry expressed their dissatisfaction with the numbers and they expect the inflation to touch double digits in August before it is expected to come down towards the end of the year. Rising inflation is a major concern not only for India but also for other countries as well. The central banks have time and again used interest rates, to control inflation.

Previously we had seen inflation numbers above 30 per cent in 1973-1974 due to steep rise in oil prices. This was when the Organisation of the Petroleum Exporting Countries (OPEC) proclaimed an oil embargo.

Concern
Present rise in inflation is due to the global commodity price rally and the authorities have brought down the inflation from a level of 22 per cent in February 2010 to around 9 per cent. Rising interest rates will clamp down on the profit growth of the companies, which depends on borrowed fund. Also the automobiles sector and the real estate companies will be affected, as buyers would be reluctant to take loans when the interest rates are high. Infrastructure companies will postpone their projects, as they would require fund to complete it. When manufacturing activities slow down, it will also affect the Gross Domestic Product (GDP) of the country. Recent reports show that CMIE lowered India's FY12 GDP growth projections to 8.1 per cent from 8.6 per cent. Also given the present global situation, Morgan Stanley cut its estimate for global growth to 3.9 per cent against 4.2 per cent.

Pressure
Our financial system is well managed by the Reserve Bank of Indiau00a0 (RBI). But the financial crisis that we are seeing in the US and European markets will have some effect on our country's economy. We have seen immense selling pressure in banking stock with recovery seen by the end of the previous week.
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Stocks
Last week, IT and technology stocks were among the major laggards. The US and Europe remain the major customers of our IT companies. Hence, financial worries, weak economic data and fear of slow down in those countries will affect the IT companies. Also, the below expected number posted by Dell Inc. was a matter concern. Nifty broke the psychological support of 4,800 and closed well above it. Major support will be at 4,800 and movements below this can cause further down trend, but due to oversold situation and expiry of August, there could be minor support, which in turn can cause high volatility in the market. For long-term investors counters like Axis Bank, HDFC and HDFC Bank, M&M stocks can be bought in small quantities on a declining mode. Stocks like Coal India, Blue Dart Express, ITC , HUL areu00a0 good investments.


The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here.



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