>TRADE WINDS (KARVY)

30 March 2009 to 05 April 2009

Five potential positives for our markets…

The worst financial crisis in the global economy is likely to present a wonderful opportunity for those who have the conviction and courage to participate in the markets using calculated risks. The unprecedented efforts by governments across the globe and the coordinated action by major central banks in the form of stimulus packages, tax cuts, reduction in interest rates, and infusing liquidity into the system were aimed at getting the global economy back on track. The actions are likely to pave the way for a recovery in the global economy as well as a rally in global stock markets.

The following are some of the key positive factors that could contribute to the rally in stock markets.

■ Increased government spending: The governments in major economies like the US, European Union, Japan, China and India have increased spending on infrastructure, which is likely to trigger demand in auto, cement, construction, and capital goods sectors. The measures announced by policymakers to revive the housing market are likely to bear fruit in the next few months and is likely to boost the positive sentiment in the markets.

■ Reduction in tax rates: The Indian government has taken several measures in the form of reduction in excise duty and service tax as a measure to stimulate demand in the country. The US fiscal package signed by Obama includes tax cuts for the middle-income group in an effort to boost the economy by leaving more money in the taxpayers’ hands.

■ Lower inflation and interest rates: The global economic slowdown has brought down inflation to all-time low levels. The fall in demand for crude oil, metals and other commodities has led to lower inflation across the globe. Inflation in India has come down to 0.27%, triggering concerns over the emergence of a deflation, although there is little to indicate that India will undergo the pains of a typical deflationary scenario.

■ Increased consumer confidence and spending: Consumer confidence will be boosted once the results of these stimulus packages reach the end-user. Also, credit availability at much lower interest rates to corporates will ensure timely ongoing expansion plans. The political stability in the US has brought clarity in regard to its policies. In India, too, clarity will emerge on various policies and economic issues once the new government is formed. A clear policy environment will improve and facilitate consumer confidence.

■ Growth in EPS and FII inflows: The above factors will enable companies to maintain profit margins and increase sales. This will lead to rise in net profit and EPS. The Sensex EPS growth will attract FIIs (foreign institutional investors), besides investments by DIIs (domestic institutional investors), such as mutual funds and insurance companies, which channelize the domestic savings into stock markets.

To see full report: TRADE WINDS