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Market Await Policy Cues To Tide Over Slowdown

Posted by Manish Agrawal on Monday, 15 December, 2008

With shrinking industrial production (IIP) numbers for November intensifying fears of a sharper economic slowdown in India, investors are awaiting suitable policy responses. There is an anticipation of second tranche of fiscal sops from the government and additional interest rate cuts by the central bank. 
In addition to domestic triggers, investors will keep a close watch on the extent of rate cuts in the US, comments on the interest rate outlook by the Federal Reserve on Tuesday and a likely bailout package for the troubled automobile giants. The Fed is expected to cut the benchmark rates by 50 basis points to 0.5% as part of its attempts to revive consumer spending. 

Analysts said the US is unlikely to allow auto giants, including General Motors and Ford, to fail as this will have severe implications on an already-sagging economy. The resurgence of the US is considered to be critical for most emerging markets, including India as it consumes roughly 15% of the world’s exports.  Back home, analysts believe that any measures taken by the government and RBI to protect India from a global recession will assuage nervous investor sentiment only temporarily. There will be no immediate impact on India’s weakening economy. 
“While the government’s fiscal stimulus package and monetary measures are positive, they are unlikely to reverse the slowdown in growth and the downside risk appears to be increasing,” said Citigroup economists Rohini Malkani and Anushka Shah in a report. 
With the market already rebounding 10% off its low and the uncertain investment climate, brokers are advising clients against purchasing aggressively. However, they do not rule out more upsides. 

“The risk-reward ratio is certainly not favourable at the moment. We are advising clients to take it slow,” said an official at brokerage Sharekhan. The markets may correct another 20% from current levels, going by the general perception. 

Credit Suisse expects the Sensex to revisit 9,000 “again and again ahead of the elections in 1H09E (first half of 2009)”. It ended at 9,370.87 on Friday. 

“In 2H09E, the market could rebound sharply if the general elections end with a conclusive result and a reformist government. Otherwise, the Sensex could remain at the bottom-of-range valuations, trading around 9,000 for a while more, as consensus expectations continue to contract,” the investment bank added

Source: Economic Times

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