-- Posted Wednesday, 27 June 2012 | | Disqus
- Monsoon rains
- Prices of vegetables and other food stuff.
- Political stability after Indian presidential elections
- Economic reforms
- Government’s ways and means of reducing budget deficit.
- Global economic sentiment
- Diesel price hike and LPG price hike (if any).
- Interest rate cut or any liquidity increasing measures.
The second quarter has been riddled by:
- A record weak rupee against almost all the major currencies
- Bearish trend in Indian stock markets
- Very high food price inflation.
- UPA government struggling to survive.
- The most negative sentiment among overseas investors as well as Indian corporates in the past decade.
- Slump in Indian gold demand.
- People regretting their choice of UPA government.
2012 could have the worst monsoon in thirty years as per the Indian meteorological department. Farmer subsidy could be increases and loan waiver could be announced in some states (if not all states). The farmer loan waiver schemes have been announced since Independence in every election year by the Congress party. Any such announcement will widen the budget deficit and increase the negative sentiment on the rupee.
If monsoon rain fails then rural demand will suffer, prices of vegetables and other food stuff will zoom. Capital good sector will suffer as replacement demand will reduce. Gold and silver demand will fall further rural demand is the consumer.
Diesel price is something which I am looking forward to. Rise in diesel prices will be inflationary but it will reduce budget deficit. Petrol hike affects general population in a more or less zero way. Indian economy runs on diesel and not on petrol. Vehicles like trucks, buses, trains and generator sets all run on diesel. But the hike is necessary in the long term interest of the nation. A rise in diesel prices will result in all round price hike across every thing in India. If diesel prices are not raised by Rs.2 to Rs.3 this quarter then the economy will continue to be deep mess.
Increasing limits to foreign direct investment limits in almost all left over sectors will halt rupee slide for a few years. The government has to cut its own expenditure. Over the past few months newspapers all over India were there with details of expenditure by the outgoing Indian president and even the Lok Sabha speaker and a toilet being made by for over Rs.40 lac by the planning commission. Every person associated with the UPA government has been spending money like never before in history. Unless the government is frugal India will continue to have huge budget deficit and India could be another Indonesia of mid nineties.
The “Air-India” pilot strike seems to be unending and is a huge burden on tax payers. Every year whenever there is peak air travel season there is strike by pilots of “Air-India” which makes me believe that a nexus exists between Indian airlines pilots, private air airlines and politicians.
The diplomatic corporate fraternity in India has very openly said that the UPA government will loose miserably in the next general elections if the current state of economy continues for another year.
The fall in global crude oil prices is acting as a savior to India.
I can write endless pages on the failure of the UPA government policies and the prime minister Mr.Manmohan Singh (an eminent economist) sitting like a lame duck. Unless food prices come down in s sustained way Indian lower class people will continue suffer. The government can let wheat rot in the fields instead of free distributing among people. They will allow wheat exports and rice exports despite domestic prices on the rise.
Technically Speaking
Rupee needs to break 58.41 against the US dollar to target 59.57-63.0650. Only a daily close below 56.79 for a week will alter the bearish trend to 54.1225 and 53.3250.
Every market has a tendency to overshoot or undershoot. Rupee’s weakness has overshot and it can continue for some more time. It’s difficult to predict when rupee will start to gain against the US dollar but it can happen anytime. Its has happened with the US dollar, gold and every market.
A weaker rupee will give impetus to domestic manufactures which were just finished by cheap Chinese imports. For example In Vishwas Nagar area of delhi there are very small assembling units which used to manufacture cooler pumps, cooler fans and had huge sales before Chinese invasion. Those who have survived the Chinese onslaught are now seeing brisk sales aided by a weaker currency and an extra long summer. (These units used to operate from 500 square feet rooms to a few thousand square feet area and hiring from three workers to over thirty workers). More and more manufacturers are now forced to look inward sourcing than search the web for Chinese manufacturers.
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice.
-- Posted Wednesday, 27 June 2012 | Digg This Article
| Source: GoldSeek.com
