The last week the supply negative news outstripped the sunny wave. The CRR rise has received mix response. The banks were quick to comment that the rise will not have major impact on availability of credit . Then why hike the rates ?
I read this hike as an indication for the budget to be populist. There are limited Fiscal Steps the government might be willing to take. Hence the pressure to tighten the raising Liquidity has fallen squarely on RBI . The budget on the other hand can dole out liberal stimulus packages to core sectors like Power , Auto , Infrastructure and IT.
The Democrats were back in action .The Obama state of union speech has given indications that large unemployment is the chief concern for the Government .The large fiscal stimulus has not been able to generate enough opportunities. The tax sop cut proposed on outsourcing companies will help in creating more jobs for Americans. The high economic growth out of 5.7% has failed to cheer as it is driven by inventory fall. Inventories declined by $33.5 billion after falling by more than $100 billion in each of the previous three quarters. The change in inventories added 3.4 percentage points to growth. The reappointment of Bernanke failed to cheer the markets , as the demand for changing the fed structure gained momentum.
The next week , I expect Rupee to further strengthen to the levels of 45.50 . The ten year bond yields will keep rising .It is a good time to short some banking stocks and go long on metal, Auto. The two names that I will pick is Icici bank , our most global bank , in terms of assets exposure. (Current Price 830.35 ) The metal company to be invested in could be Tata Steel. It will be good idea to hold on to it till budget.(Current Price 569) My good friend Arup picked up quiet a few shares of Renuka sugar on Friday. I do not see much value in them, but may be they are good for making a quick buck.
Predictions:
Sensex :(7/02/2008 ) : 15800-16100
Rupee (7/02/2010) : 45.50
