The week ahead : Market plugged, Writing Unplugged

Through last few days I haven’t seen you coming to my pages. And that off course is not your fault. You got no new stuff to read. But I must convey that author also has some compulsions. Blogging to its purist form is spontaneous. If author hits any literally blockade, that spontaneity gets hurt. And the result is my absolute absence from writing. I do not wish to feed you rubbish.

In my last post, you read that market might taste new highs and that high would be in the range of 4400 to 4500 for Nifty50. And market is moving in the same direction. Suddenly by the end of last week, a concern got spread regarding further Cash-Reserve ratio hike. And the reason, explained, was influx of extra liquidity due to timely maturity of G-Sec series and RBI intervention in Forex market.

RBI preferred to use Market Stabilization Bond(MSS) to shed any extra pound. But in near future is it possible to witness another CRR hike? And the answer has flip sides.

First of all, monsoon is going to touch coastal India within a few days. Farming activity will start in most of the parts in India. Working capital requirement will remain steadily high. Any CRR hike will push the fund cost up for agri-community. Government should not like to risk farm-production or political credibility before strong agri-lobby.

Opposite side is, during monsoon season prices of primary commodities increase in some parts due to supply side problem. That would effect the inflationary composure. If central bank start intervening forex market to restrict rupee appreciation, rupee liquidity will increase. And that might encourage speculative activity in both of the financial and commodity markets. So, CRR hike would become inevitable along with MSS activity.

Now central bank have to choose any of these options and market will react to both.

For the sake of soothsaying, market will remain positive for few more days but not expected to show any swift rally. So start preferring tortoise over rabbit. Any prominent correction should be visible only after mid-June or July due to first-quarter result related issues.

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