Tolerance and courage!

The test of courage comes when we are in the minority. The test of tolerance comes when we are in the majority. - Ralph W. Sockman.

After 12 long months, the Government has finally mustered up some courage and hiked fuel prices. It also announced a recast of duties to mitigate the impact on consumers. While state-run oil companies will get some relief in the short term, the Centre’s revenues will be hit owing to the duty rejig. The overall picture on subsidies is still gloomy. Inflation will spike over the next few weeks. That, in turn will prompt the RBI to jack up rates further in maybe in July. Keep an eye on crude, which has corrected a bit lately.

The start today looks bad, partly due to fears on inflation and partly owing to weak global cues. The market bounced back largely on the back of short covering. Expect volatility to increase as this is a F&O expiry week. The Nifty has to stay above 5400 with positive breadth and strong volumes to signal an intermediate upswing. But, given the confluence of local and global headwinds, skepticism has more takers for the time being.

There is some good news on fund flows. FIIs were net buyers of Rs 8.9bn in the cash segment on Friday, according to the provisional NSE data. The domestic institutional institutions (DIIs) were net sellers at Rs 4.86bn on the same day. In the F&O segment, the foreign funds were net buyers at Rs 48.69bn.

The foreign funds were net buyers of Rs 4.83bn in the cash segment on Thursday, as per SEBI web site. Mutual Funds were net buyers of Rs 2.34bn on the same day.

The Bank for International Settlements (BIS) has warned that some central banks risk sowing a new crisis and weakening their inflation-fighting credibility by keeping interest rates too low and magnifying their balance sheets.

Once central banks start lifting rates, they may need to do so more quickly than they did in the past, the BIS said. It also spoke out against the risks of the large size and complexity of central bank balance sheets.

The world's biggest and most important banks will have to hold up to an additional 2.5% of the strictest form of capital on their balance sheets to protect them in event of another crisis, the group of central-bank heads leading the Basel discussions agreed on Saturday.

The Financial Stability Board is expected to issue the final rules next month.