The Week Ahead 19/03/2007 – 23/03/2007
Posted by dipanksaha on March 18, 2007
Through out the last few write ups I figured myself as bear for a time being. Without any prominent fundamental support I decided to call current down trend, as an initiation of interim bear phase. This decision, even, failed to earn much of my own confident. But as days are passing by, I am gaining confidence over my forecast. I often said, price study or technical analysis – whatever be the tag you attach with, price movement of any asset class leaves lots of clues; one can potentially track them and reach the point of causality. But this style of analysis often creates confusion incase of prejudgment. Lack of evidence makes analytical explanation bit difficult.
As of now, situation in India is no gloomy. Other than few tax proposals in budget, no serious hurdle is visible before corporate India. Consumption demand is not going to die down. Industrial production is not showing any sign of tiredness. But despite all these things, some problems are raising their hands. And they are inflation and interest rate. These two is no Indian product, they are global phenomena. China, ECB, Japan – almost all of them are raising interest rate to curb the inflation. Indian central bank is thinking no different.
Other than few typical sectors, Indian companies are not much debt-ridden. Historically they were on surplus capacity and for last few years they are getting a chance for fuller utilization of their capacity. As they use more and more of their capacity, a business urge for capacity addition emerges. Especially capital goods and construction material companies are on capacity addition mission. They are trying both organic and inorganic routes for this purpose. But in both the cases they can face huge interest burden. In coming days if the situation sustains, debt-serving cost of these companies will definitely increase. Once moderate interest rate helped these companies to taste supernormal profits (one can argue!!!) and following that profitability concern equity market enjoyed bull ride. But recent rising interest cost will definitely affect profitability, at least for short to medium term. And I feel current down trend in share prices is just an effort to discount these unavoidable drags on profitability.
As the levels for Nifty and SENSEX haven’t reached the targets, I am still holding on previously settled levels. If in between the market starts showing different colors, we will need to sit with our chart book again. Till then good bye (!!).
