Fed fumble & currency crumble

A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation. - Ross Perot.

A steep fall in the rupee since August to an extent reflects the rapid deterioration in India’s economic fortunes. A big problem is that policymakers have little room to arrest the economic slowdown. The RBI cannot afford to cut rates as inflation remains elevated. The Government is also hamstrung due to a swelling fiscal deficit. The eurozone credit crisis and anemic US economy have made matters worse. Downside risks for the Indian and global economy still persist. Therefore, one cannot rule out further drop in equities and currencies. There is only one option: endure the pain and avoid misadventures.



The start is likely to be down owing to weak overseas markets. US shares fell as the Fed refrained from announcing new stimulus measures. European indices finished mixed but largely remained under stress on Germany’s reported rejection of increasing Europe's proposed bailout fund. German Chancellor Angela Merkel's comments overshadowed decent debt auctions from Spain, Greece and Belgium. The EFSF also sold €1.97bn in three-month bills. Asian benchmarks are indecisive.

Inflation for November is set to ease from October. Any print below 9% could perk up the mood before Friday’s RBI review. Indian markets witnessed a series of volatile swings in Tuesday's trading session. The Nifty failed to close above 4840, which turns out to be the lower shadow of Fridays ‘Doji star ’pattern. The short term trend is negative. A positive trend could emerge only above 4920.

FIIs were net sellers of Rs 5.6bn (provisional) in the cash segment on Tuesday, according to NSE data. The domestic institutional institutions (DIIs) were net buyers of Rs 4.81bn on the same day.

The foreign funds were net sellers of Rs 4.48bn (provisional) in the F&O segment on Tuesday, NSE data shows.

FIIs were net sellers at Rs 3.19bn in the cash segment on Monday (Dec. 12), according to SEBI web site. Mutual funds were net sellers at Rs 1.76bn on the same day.

Global Data Watch: Australia Westpac Consumer Confidence (Dec), China M2 money supply, Japan industrial production, UK unemployment rate, EU industrial production, US mortgage applications and US import prices.