Markets dance to local tunes
- Uncertainty and risk in the market have sharply risen in the recent past. In addition to the global uncertainties the market now has to grapple with domestic interest rate related risks as well.
- There are widespread concerns that the tightening of money supply has been excessive and could lead to a significant slowdown in the economy, especially in the interest rate sensitive sectors such as automobiles and housing.
- We are still maintaining our views that (1) inflation will moderate going forward and (2) the US economy will slow down but not go in recession. As these events unfold, concerns should ease and the environment for equities should improve. However, the risks around our base case have certainly risen.
- Volatility is likely to peak in the next four weeks. We expect inflation to ease by the end of this month. End April shall also bring the initial monsoon forecast as well as the credit policy of the Reserve Bank of India (RBI). While the fourth quarter results of Indian companies may not be a trigger, the market will keenly await the guidance on the FY2008 prospects of the corporate sector, especially that of automobiles, banks and the other interest rate sensitive sectors.