Friday, 14 November 2008

Week ahead: Outcome of G20 meet holds key

The outcome of the two-day G20 meet scheduled on Friday and Saturday in Washington will set the tone for the global markets in the week ahead. Political uncertainty ahead of state elections and uncertainty about a US Treasury plan to forgo buying bad mortgage-related investments to buy stakes in US lenders, may weight on the domestic bourses.

The market may get support at lower level on expectations of a further cut in interest rates with inflation falling to single digit. Softening inflation will enable the Reserve Bank of India (RBI) to further cut interest rates to create more liquidity in a slowing economy. Lower interest rates boost stocks as they help rise in corporate bottomline by way of lower borrowing costs. RBI has already signaled an easier rate regime and cut a key short term rate earlier this month along with cuts in bank reserve ratios to free up funds for lending.

Inflation, as measured by the wholesale price index, declined sharply to 8.98% in the week ending 1 November 2008 from 10.72% in the previous week mainly due to sharp drop in oil prices

The investors will also keenly watch developments at the G20. The G20 political leaders in will discuss ways to protect the global economy from a repeat of the worst financial crisis in 80 years. Prime Minister Manmohan Singh, who left on Thursday night, 13 November 2008 for the G20 meet, is ready with his recommendation to tackle the global meltdown. Singh said International financial institutions like the IMF and World Bank should be strengthened to ensure that the fallout on developing countries is minimal. He also stressed that in a coordinated approach towards monetary and fiscal policies, India plans to work in tandem with China, Brazil, Mexico and South Africa within the G20.

The Indian economy is witnessing a slowdown after a strong growth in the past three years. An indication of the slowdown in economy and trade was a 5% fall in excise and customs collections to Rs 18664 crore in October 2008.

Foreign institutional investors (FIIs) have been pulling out their investments from India and other emerging markets to shore up resources to beat the global liquidity crunch. FII outflow reached Rs 50,432.30 crore in calendar 2008, so far, till 11 November 2008.

In what will be a crucial and last popularity test ahead of parliamentary elections due early next year, six Indian states will elect new governments in staggered elections beginning Friday, 14 November 2008. Voters from Muslim-majority Jammu and Kashmir in the northern tip to Christian-majority Mizoram in the northeast will see polling along with Rajasthan, Delhi, Madhya Pradesh and Chhattisgarh. If Congress does well, the government may use the momentum to call early elections in February 2009. A poor showing could see the government wait until April 2009 or May 2009, the end of its term.

Source: ndtvprofit

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