Friends,
The Ruppe has plunged to a low of 41.80 to a Dollar yesterday. It is due to reduced fund flow from overseas . The governments over reaction in regard to the high inflation number and the resultant enthusiasm shown by the key ministers in govt. in the form of pressure on cement and steel producers to reduce prices has given a signal to outside investors that the govt. of the day will go to any extent for the political compulsions . The reforms are no longer seem to be agenda to them . Naturally than why any body would take the risk of parking capital in this country.
It would have been alright for the govt, to correct the situation if the inflation was high due its own policy initiatives earlier. This is not the case and the inflation is due to the economic readjustment in light of the factors not under its control. The inflation apart, there is a relative price adjustment going on for various items of large consumption and the sources of raw material required for energy generation. The govt’s desire to tax petroleum to the hilt on one hand and to to keep prices from moving up inspite of oil touching $120/bbl in international market is the real problem. Yesterday Mr Raha expressed opinion the oil pricing mechanism in India has no rational basis. Mr Raha has been the Chairman of ONGC and should be supposed to know the whole oil pricing affair. When he says that it is an excercise without base , it should have substance. The ultimate sychronisation of local retail oil prices will upset many an apple carts. The wrong investment made in different sectors till then will be real economic loss for the country.
Now understand this by an example. If the petrol sells at higher price there would be no capacity expansion in the auto industry. Since oil marketers suffer the car demand goes up for the public has cheaper fuel to burn. If and when the oil pricing is freed the high fuel cost will diminish demand for cars. Investment made in auto ector will then become unproductive and it will be an economic loss for no plausible reason. The only option is to go open in all ways and rely on market mechanism. The poors should be taken care of by directly helping them by raising funds by taxing richer people.
In light of this would it not have been proper to ask the steel companies to provide steel for constructon of dwelling units of 75 sq mtr plinth area to the families without any member having taxable income, at cheaper prices. If the steel is given by producers at lower prices which finds way in to the construction of luxury houses with swimming pools, how is society is helped. So, who these ‘netas’ are crying for.
The market took beating today, not so much for local reason as for the reasons out side. The rumour is that Citi Group will sell assets worth $10 bn. I don’t see the connection here. The markets have come down due to irresponcible attitude of govt. and the fear it imparts.
However, after the advice earlier in the week to sell half your equity stock I advise you to get back in to it gradually but please get armed with ‘panch-tattva’ advice for specific stocks. The high inflation and still no relative change in the interest rates makes me speak this. Afterall this makes the real rates lower for the enterprneurs. It reuires a lot of steel and cement to construct a cement or steel plant and the share prices of cement and steel companies should go down is difficult to digest. I hope you have taken the cue.
HariOm,
krsnaKhandelwal