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Mid Year Review - June, 2008
The dollar continues to fall globally – Right!
Dollar bounces back on the rupee – Right!
India shall take the first step towards softening of interest rates in the first quarter of 2008 – Wrong!
The carry trade could see some unwinding this year, which means the stock markets across the globe are not going to run away. But India will stand tall and generate double digit returns – Wrong!
What changed and what do we need to readjust going forward ?
Inflation and a strong spurt in oil prices were the biggest surprises, despite a slowdown in global economies. We are looking at a rare scenario where growth is decelerating and inflation is accelerating in emerging markets – a whiff of stagflation,loosely speaking, as a GDP growth of 7.5% in India is still damn good in absolute terms!
A similar situation will be seen in global economies where growth is almost flat and stagflation as a term is more appropriate.
So what is the impact ?
1. Countries to raise interest rates as inflation takes priority over growth, especially so in India with elections around the corner..
2. Another repo rate hike of 50 bps in India and a 25 bps Fed Funds hike in U.S by end ’08.
3. Rupee to appreciate, but with a higher target of 42.00 by year end.
4. Stock markets to turn around by September as life starts looking up
Trading Strategies:
1. Short Dollar rupee with a stop loss of 43.20.
2. Long dollar on the euro at current levels – 1.5800.
2. Good bye,Bonds – Gentlemen will not prefer Bonds for the rest of the year.
Any comments? Mail jai@corporateacademy.com
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