Friday, 6 September 2013

Beware of Mid September blues

Rajan Effect : Sensex soars 400 Points on Thursday

Dr.Rajan welcome to the Governor’s post of the central bank(RBI). You have a challenging job ahead. The reasons are Federal reserve might be tightening its money supply. The details of it is discussed below.
 If you look at the quantitative easing(QE) the Federal Reserve has undertaken, it runs to trillions of dollars. This was undertaken to kickstart a dull economy(USA primarily) from 2008. Now that the economy is showing signs of reviving it is likely to cut the QE.

The first recall of the easy money will spook the markets in a jiffy. I might seem very pessimistic but when the first tranche of QE is recalled every developing market will catch a cold, when the Fed sneezes. More importantly a first sign of Fed indicating reversing the money flow has had catastrophic effect on the emerging economies. Just imagine the effect when it will actually turns it off.

Dr.Rajan,  RBI Governor feels rupee can be defended. Agreed but if you take into consideration the enormity of the Fed’s actions can have, RBI might be a David not a Goliath. In the market Goliaths usually win and not the Davids.

Regarding the action taken by the Indian government, it is on a overdrive to make up for the lack of action by it in the last 3-4 years. Although the realty developers are not getting sleep but atleast the government has made its stand clear. The government is going overboard to please the landowners. You cant expect anything better than it in the election year.

Regarding downgrade, about 11 Indian Banks were downgraded recently. The downgrade is not for the 11 banks but for South and South East Asian region.

As predicted the nation’s status will soon become junk if the rupee is devalued like it did this August.

There is more data coming from United States which has decreasing unemployment rates. This makes the inevitable to come a little sooner rather than later.

Come middle of September and we will know what is the storm in store for us. We can say the worst is yet to come. Federal reserve is likely to act in mid September.