Tuesday, January 6, 2009

Nifty and the Global Economy

The global deleveraging process is still on. According to posts on the Calculated Risk blog, commercial real estate firms, retail chains, etc are facing significant financial problems both in the US and in the UK. On December 17, 2008 the Fed made an announcement revising the target fed funds rate to zero and indicating a policy of further monetary expansion through quantitative easing. The recent uptrend in global markets appears to be on the back of that announcement. Globally, Q3 earnings are going to be released and economic data hasn’t been encouraging since that announcement. After Obama’s inauguration on January 20, 2009 announcements regarding the US government stimulus package are expected. Global economies are in a recession and economic expansion can definitely not be expected during Calendar Year 2009.
Around 32% of India’s GDP comes from exports. Around 15% of that is merchandise exports. Export markets are severely affected by low levels of aggregate demand worldwide, apart from operational issues such as the availability of credit. Given the Q3 earnings releases in India and similar data on financial performance worldwide, all the news and cues from today onwards till January 20 can be expected to be bearish for the Nifty.

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