Finally the wholesale inflation in India is below
6%. Some critics say that this is nothing but a ‘managed’ inflation reduction
by changing the reference data. It is ok to do so as long as it is not a
blatant invention. Those who know how company’s announce earnings know that
there is some earning management. Hence, when a sovereign releases its earnings
equivalent economic data, some management is acceptable. Another bunch of
critics say that these figures are related to wholesale prices & not the
consumer prices. They point out that the consumer price index may still be
above 10%. Well, what we want is rate reduction from RBI and if the reduction
in wholesale inflation will help to achieve that, we ought to welcome it.
Hopefully, consumer inflation will reduce in due course.
How much RBI will cut the rates on 3rd
May 2013? Stock market has rallied – Nifty has nearly touched 6000 level
despite poor earnings by some corporates and low Indian growth rates. Some
die-hard optimists predict 0.75% cut, a few brokers expect 0.50% cut while
bankers such as Barclays, RBS predict 0.25% cut. Financial thoughts believe
0.25% is more reasonable as RBI has already reduced the rates by 1% already.
Will the markets zoom further? It all depends also on
political risks- the mother of all risks!. It is a fact that UPA is a minority
government and relies on outside support-which can be gone in day or two.
Ever since humans invented ‘private property’
encroachment of neighbours property exists and a form of greed. China is no
exception as it clandestinely entered into Indian Territory. They do it with all their neighbours –
Vietnam, etc. China’s economic encroachment has left millions unemployed in
several countries; however China did supply cheaper goods by ensuring that a
significant portion of their own population worked under conditions of ‘near
slavery’ or bonded labour. Whilst China’s economic encroachment is acceptable
in the spirit of competition and capitalism, the border encroachments cannot be
justified in any manner.
Any escalation is border-dispute with China and
mini war could be yet another risk-well a sort of ‘black swan’ risk.
Probability of this happening is negligible; but impact would be severe.
Indians Loose Billions in Gold
Forbes recently reported that hedge fund gurus John
Paulson and David Einhorn who invested heavily into gold has lost more than USD
One billion when the gold price became bearish during mid-April spooked by
fears of sale of gold by Cyprus bank.
No one reported how much Indians as class of
investors lost in this gold debacle. During the last one year, whenever I met Indian
businessmen who frequents between Dubai and India, they mentioned the craze of
Indians for gold. They lost trust in real estate (due to several scams), stock
market and chit funds (again there are several scams). So the funds were
flowing into gold. Even RBI or similar authorities have come out with a report
saying that Indian bank deposits recorded slower growth because Indians pumped
money into the gold instead. The result was that Indians imported gold in tons –
over the last couple of years, Indians imported and horded gold worth USD 120
billion. So, Indian investors might have lost more than USD 10 billion when the gold
prices tumbled sharply.
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