The growth in our economy is not contracted but we are making it to grow slow to control spiraling inflation. The growth will have no significance unless the inflation is controlled. The Nifty is now adjusting to the future earnings. The world economy especially the EU is cracking like in 2008. The world over growth now has become a big challenge as the developed nations like US are at negative growth coupled with high un-employment, low productivity are at stagflation stage.
In this emerging scenario the export dependant, driven countries will depend on their local markets for sales that creates a situation of glut will will create and aggravate economic problems where in the production cuts will become the order of the day. The classic examples of de-rating will happen on most developed sovereign nations. The markets will react to a situation to grind it lower to lower level. In India, the Govt. is grappling with many issues related to corruption and governance. The last 3-6 months the policy measures for triggering the markets are at bay.
Now our situation is forcing us to think twice, whether to continue our tight monitoring policy or encourage the economy to open for growth. The production cuts are happening in auto mobile and now in stainless steel. The iron ore production has reduced that forced steel companies production cuts. The coal shortage due to floods in coal mine areas in Australia spiraled in cost but the India situation is not seriously effected with Coal India support. The Jharkhand pollution control Board has given notices to Coal India for closure of Mines due to environmental issues. The situation may create another shortage problem to power and steel industries. The ripple effect will have cascading effect that can derail the growth estimates. The next five year plans starts from 2012 to grow above 9% will become a big challenge that topple and crumble the foundations made so far.
The Nifty has exhibited great support at 5200 level was not easily broken but three time support has built retail investor participation but not left anything special. The situation now has changed gradually to touch a level of 4700. The fall from the reasonable bullish zone above 5850-5800 to 4700 is more than 1000 points. The Reliance, DLF, Tata motors, Tatasteel, Hindalco, STER, Sesa Goa ICICI, AXIS and SBI lost their shape and attractiveness. The deformed stocks will get a healthy look only when the Nifty crosses 5100. Now the news flow is against for blue-chips. The standouts will have very bright future along with these stocks. The midcaps will out perform only after one year or so. The fancy look is not available and the growth driven rose picture is not saleable in these market conditions.
The technical bounce back shall be used to off load the positions as they are not going to yield any significant results. The risk reward ratio for these stocks looks attractive on the face of it but the multi-baggers will emerge only after 2-3 years that to on selected counters. The world economy is a concern for now but the emerging markets will out-perform in the years to come.
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