Weekly Newsletter - Apr 13 2012

The roller-coaster ride continues on Dalal Street, with the main indices falling ~2% each after rising modestly in the past couple of weeks. While the dismal IIP numbers and shocking revision lifted hope of a repo rate cut on April 17, worries about slowdown in China and fiscal woes in Europe dampened the mood on Friday. IT shares were hit hard after Infosys announced disappointing Q4 earnings and muted guidance.

Concerns persist over economic growth in key regions like the US, China and the eurozone. Back home too, the macro-economic conditions are not conducive. While the Government continues to dither on important policy reforms, some of the announcements like GAAR have spooked foreign investors. Data quality and reliability are also in doubt following the IIP fiasco. Therefore, there is an urgent need for the Centre to prevent the situation from spiraling out of control.

The RBI could help by cutting the repo rate by at least 25 bps. But, given the high fiscal deficit, elevated crude oil prices and sticky inflation it will be a tough call for Governor D. Subbarao.