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Industrial Products India, Industrial Manufacturers & Suppliers


Markets may see some correction

Markets may see some correction in short term: SMC

Volatility is expected to rule for some time in the global equity markets. However, world economy is in a much better shape now compared to a year ago on the back of steps taken by the global central banks across the world. 

With the improvement in the labor market in the US and Japan raising its assessment for the first time in two months, one can plainly see that growth in global economy is there, but may be moving inch by inch. It is still far from returning to the normal growth. 

However, a perfect storm of factors including weak China data, Bernanke confusion, surging Japanese bond yields and a strengthening yen contributed the markets across the globe to sit aback. 

Japan's Nikkei fell to its lowest levels in over a week as investors got spooked by the weak data in China, one of Japan's largest export markets. China May HSBC flash PMI data shrank for the first time in seven months. 

No doubt accommodative and unconventional monetary policies that are being taken are the right response for the short-term as it reduces the risk of a global catastrophe. 

But governments across the globe on the fiscal side are delaying the process to impair the system in view of the fiscal constraints. Even the flash US manufacturing PMI fell sharply in April, signaling the weakest pace of expansion in six month. 

Back at home, it is very unfortunate and harsh on the part of S&P that it has restated its negative rating outlook on India's credit rating. It has also warned that if the government fails to carry out reforms to boost the economy, it may downgrade to junk status. 

Though the Indian economy is slowing, but foreign institutional investors (FIIs) have kept the firm faith and we have seen a good inflow. It means that optimism is still there in the market and India remains a very powerful investment destination globally. 

Its long-term growth and consumption story is still attractive. In his recent attempt to encourage more foreign fund flow, the Finance Minister has withheld tax rate, eased norms for FIIs and qualified foreign investors (QFIs), which is expected to encourage greater foreign flow in Indian debt market and may help to develop local debt market and accelerate the economic growth. 

There are wide expectations that RBI will announce a 25 basis points rate cut in June or July review meeting, taking a cue from the continued downward surprises in inflation and sluggish growth indicators. 

The headline wholesale inflation fell to 4.89 per cent, to a 41-month low in April, dropping within the central bank's comfort zone of less than 5 per cent which has raised hopes of a rate cut to revive sagging economic growth. 

Moreover in the recent UPA II result, the government has assured that it is taking several measures including keeping the issue price for wheat and rice unchanged and absorbing a significant part of LPG, kerosene and diesel cost, to keep the price level in check. 

In a nutshell, we may see some correction in the market in the short term. However, from long-term perspective our markets are looking quite strong. 


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