Tuesday, June 17, 2008

 

India stock market update as of 17 June 2008

The inflation figures that come in nowadays must be as scary for the industrial sector as it must be for the common people and the Government. If inflation remains high, then the Government, afraid of adverse political reactions, will try to curb money supply leading to a higher credit squeeze, something that has the effect of throttling industry. These measures do not lead to much benefit, since the rise of prices of commodities (and specifically oil) are global supply issues, not something that the Government can control from inside India.
So why does industry get scared ? Decrease in liquidity in the economy reduces purchasing overall, and combined with a credit squeeze, industrial growth starts to slip. However, a rapid pace of industrial growth is the only way for India to grow, and for more people to move away from poverty; so in that sense, the Government is willing to sacrifice growth and reduction in poverty for political measures that will indicate that it is desperately trying to cut prices. In such a economy, sectors that are dependent on commodities such as steel, oil, etc suffer the maximum. So steel sector is somewhat in a hole, and so are engineering and construction companies that reply on high working capital, low margins, and in many cases, cannot easily pass on raw material costs increases.
What can you do at this time ? Keep a watch out for sectors that continue to get impacted - steel, auto, brokerages and financial sector, realty, etc. The decrease in the value of the Rupee means that textiles, IT, etc are in a slightly better position. Shares that I am currently tracking:
1. TRF
2. Elecon Engineering
3. Walchandnagar
4. Reliance

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