Mutual Fund

Why BSE Sensex crossed 10,000 mark? Have you find any significant changes in the fundamentals of Indian economy? Will FIIs stop selling Indian stocks? Don’t be fooled by the statements of FM and industry heads.

This is a classic bear market rally. Just see the top 10 gainers list. You will find no significant reason behind the rise in at least 5 stocks means just short covering. Current markets are only suitable for traders and ultra short term investors who can spot the rallies. Long term investors will be irritated by frequent rise and fall in even good stocks. This trend will continue for some more months. In between, we will get sharp rallies to 12,000 and shock treatments to below 7,000 levels. Prepare for uncertainty and plan accordingly.

Government should concentrate on how to stop dollar out flows, how to raise domestic consumption and protect exports or job losses. Easiest thing among the three is “stimulating domestic consumption by providing growth opportunities and creating new jobs”. That is what China is now doing and India should follow this strategy immediately. It is very difficult for us to protect export sectors due to severe global crisis. It is better to concentrate on domestic consumption.

My GDP growth target for India is around 6.5-7%. I don’t believe in the statements of RBI and Finance Minister.

Significant statements on economy:

1. “Global crisis had adversely impacted corporates, banks and investor sentiment” Indian Prime Minister Manmohan Singh. PM urged industrial bodies not to go for large scale layoffs.

2. "I think it's definitely a recession at this point. How deep, how steep and long it's going to be is uncertain. We don't know if it's going to be a garden variety recession or something steeper. I think it's most likely to be of a fairly moderate size," – US policy maker Laker.

3. US economic recession will continue till end of 2009 - A survey of top American economists. They failed to predict current crisis despite sweeping Nobel Economics awards in recent years.

Global economic slowdown:

1. USA: Manufacturing in United States contracted at the fastest pace in 26 years. This much worse than analyst’s estimates and is the lowest level since 1982. My range for Dow Jones is 6,000-6,500 but investors still do not understand the seriousness of this crisis. This crisis is much worse than 2001 and 1991 recessions. Ford motors car sales fell by 30%.

2. Europe: “Our economy probably entered a recession this year and will stagnate in 2009” – European Union. EU showing worst economic growth after 1993. Economic growth fell to 0.2% in the second quarter. Job losses are at the fastest rate since 2002.

3. Commodities: Price drop is indicating that US is heading for longest recession since 1981. Industrial raw materials fell at an annual rate of 56% last week. Worst price drop since 1949.

4. UK: Manufacturing sector shrunk for the six month in row in October.

5. US electronic retailer Circuit City closed 20% of shops and lay off 17% of its employees. This is surprisingly shocking news before Christmas shopping season.

6. USA: AIG is still feeling heat despite $143 bailout package. What will Government do? Will it continue to fund?