Deepak Lalwani's India Report
Comment of the Day

June 23 2011

Commentary by David Fuller

Deepak Lalwani's India Report

My thanks to the author for this report of interest to those who follow developments in India. Here is the opening:
As expected the RBI raised interest rates for the 10th time since mid-March 2010 in an effort to tame stubbornly high inflation. Rates have gone up by 275 basis points in this period. The repo rate, at which the RBI lends to banks, was raised by 0.25% to 7.5% and the reverse repo rate, at which the RBI absorbs excessive liquidity, was also raised by 0.25% - to 6.5%. The continual rise in the cost of credit and high inflation has hurt both investment and consumption. GDP in the January - March 2011 quarter slowed to a lower-than-expected 7.8%, the slowest in five quarters. Wholesale prices, India's main inflation indicator, rose 9.06% in May as price pressures have worryingly spread from food and energy to manufacturing.

David Fuller's view Here too a change in monetary policy away from the tightening bias is required to put a new floor under the Indian stock market (weekly & daily) in my opinion. Lower commodity prices, not least for crude oil and vegetables grown by India, are required. I think we will see a change in the next few months as deleveraging is certainly evident for the price of crude oil and other commodities not affected by genuine shortages. Also, the government will not want GDP growth to slow much further. As with China, an eventual break in the progression of lower rally highs will be required to confirm that demand has regained the upper hand.

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