Fear factor continues, Markets to remain Weak

Bear to retain grip of the markets

• Crude prices surged to a new high of US$ 146 per barrel.


• For the week ended June 21, inflation has risen to 11.63% (a 13-year high), marginally higher than the previous week's annual rise of 11.42%


• Sustained selling of Indian stocks by foreign institutional investors (FIIs) . FII outflow in calendar year 2008 totaled Rs 26571 crore (till 3 July 2008). They are expected to remain sellers in equity in the short term.


• From a record high of 21,207 hit on 10 January 2008, Sensex has lost 7753 points or 36.55%. It has shed 6834 points or 33.68% from the begin of this year.


• Global factors continue to be negative as they fight evils of sub-prime, Crude and falling housing prices.


• India faces additional threat of Political Instability. Though the short term crisis look over with SP coming to the support of UPA government, its credentials are not trustworthy. (see my post on latest political developments)
  
  No points for guessing that the macro indicator have turned from bad to worse and there is no short term solution to these. To me, inflation and Crude oil are bigger evils as they have wide implications on a variety of factors and in turn create a vicious cycle of downturn in the economy. On one hand it results in rising cost of inputs for the industry as a whole, it also slows down the consumption story.
  
  Well, let me take to you to some of the positives now. India's monsoon has been 21% above average so far this season. A normal monsoon may result in higher agricultural output and in turn may result in cooling off the inflation to some extent.
  
  Experts are of opinion that the crude oil surge is a short term phenomenon and the same will cool down by December. An article on DNA money reports
  "With the crude predicted to touch 175 dollars a barrel and the Indian currency depreciation, FIIs will turn their focus to the commodity market which has emerged as an alternate asset class. They would prefer to stay invested in the commodity market and hedge against inflation," Crisil's Joshi said. The analysts feel that a bounce back could be seen around December with the soaring oil prices likely to cool down by that
  time.

Cooling down of crude will also result in positive impact on inflation and hence the overall sentiments. Well, I am of the view that the current market crisis will remain over the short term and things are not going to change dramatically. I am not building castles in air, but I am still of the view that if an investor takes a long term view (say 1 year), he should do well by picking quality stocks during the ongoing bearish phase.