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Market Watch: More bad news

Analysts perhaps need to drop the word "aberration" from their lexicon and accept the fact that Indian macros have declined, writes Udayan Mukherjee.
Hindustan Times | By Udayan Mukherjee
UPDATED ON APR 05, 2008 03:33 AM IST

Last week’s poor inflation number was not a one off, after all. We have hit 7 per cent on the Wholesale Price Index and there is every chance of it heading even higher. Analysts perhaps need to drop the word "aberration" from their lexicon and accept the fact that Indian macros have indeed declined. From a stock market point of view it could be a double whammy of margin erosion for companies and further monetary policy tightening affecting growth.

In a poll conducted by CNBC TV18, more than 50 per cent of respondents now expect the Reserve Bank of India to hike the cash reserve ratio by 50 basis points in its next meeting and half of them even expect a 25 basis point repo rate hike. And 94 per cent of respondents expect the benchmark bond yield to be between 8 and 8.5 per cent in the near term, which is bad news for bank stocks. None of the experts polled saw the rupee above 39 to the dollar, reflecting a belief that rupee appreciation will not be the RBI's preferred tool for fighting inflation.

One wonders what kind of news flow we will eventually end April with. Over the next three weeks earnings will be reported and one certainly hopes other companies will not go the BHEL way. The Infosys guidance will determine whether the information technology sector can continue to support the Nifty as it has of late. Derivative disclosures will hold the key to whether we come out of this season unscathed. Positive earnings surprises will be needed to neutralise the headline Inflation number that tumbles out every Friday. It is interesting to note that the market's focus has turned inward; the total obsession with global market moves has been replaced by inflation and earnings worries. This is disturbing as it could result in underperformance for our market even if the US and other emerging markets start moving up. As China has found out this year. Policy errors can be very costly at this juncture, the good Dr Reddy needs to keep his cool.

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