The idea of a minimum level of public shareholding in listed companies is not new. Until the early 1990s, promoters of listed companies were not allowed to hold more than 40% of the paid-up capital. This was relaxed to allow up to 90% promoter holding. The latest amendment requires a minimum public float of 25% in listed companies, irrespective of what requirements applied to them at the time of their initial listing. Listed companies where promoter holding exceeds 75% have to sell down to the public, diluting 5% per year until the stipulated minimum public float of 25% is achieved.

At a conceptual level, such a requirement is laudable. Among the long-term advantages of a higher public float are increased market depth, enhanced liquidity, better price discovery, and improvement in corporate governance. When companies sell down to meet the enhanced minimum public float, it should result in a more dispersed shareholding, lowering opportunities for collusive market action. The resultant increase in liquidity would enable small investors to buy or sell shares at prices that are discovered in a fair manner. Reduced ownership concentration also encourages good governance.

At a more pragmatic level too, there would be significant long-term benefits. A higher public holding would increase the free float market capitalization of the Indian market. As a result, India’s weightage in the globally tracked free-float-based emerging market indices would increase. This, in turn, should lead to a rise in the quantum of foreign inflows allocated to India. Many global funds mirror the index weightages while deciding on their country allocations. With India’s free float market capitalization increasing, the India allocations of several FIIs would go up.

With higher public float in large entities such as MMTC and NMDC, the composition of the Indian/regional market indices could undergo a change. One of the eligibility conditions for a stock to be included into the Nifty (or the MSCI) is that it should have a minimum free float of 10%. Higher public float would not only raise the free-float-based market capitalization of the indices themselves, but would also make them more representative through the inclusion of new stocks.

Government-owned companies would account for bulk of the issuances to comply with the new minimum public float norm. If the government chooses to bring down its shareholding in 29 listed companies where it owns over 75% through stake sale, it could raise more than Rs 120,000 crore over the next five years. This would help the government to consolidate its fiscal position further after raising over Rs 100,000 crore from the auctions of 3G and BWA spectrum. Stake sale in MMTC (government holding: 99.3%), NMDC (government holding: 90%) and NTPC (government holding: 84.5%) alone would help raise over Rs 70,000 crore.

However, the requirement of higher public float is not trouble-free. There would be a glut of issuances to meet the new guidelines. In the near term, the incremental equity issuance is likely to create an overhang in the secondary market. To comply with the new norm, companies would have to raise over Rs 150,000 crore. This is three times the average of Rs 50,000 crore raised annually through equity issues including IPOs. Not only will companies/promoters seeking to comply with the new guidelines find it difficult to do so, companies with genuine need for capital too might find it difficult to raise resources.

Given the ongoing global financial crisis, this is not the best time to have introduced this norm. It might have been more sensible to wait for the global crisis to subside for good. But then, there always are some not-so-desirable fallouts and some pain associated with any change. Promoters do not need to bring down their holdings at one go. Staggered dilution would help take away some of the pain, though the valuations realized may still not be in line with promoters’ expectations. The guideline of 5% dilution per year gives most companies three years and some government-owned companies five years to comply. If this were revised to 2-3% dilution per year, it could make things easier.

Another fallout might be that some companies with low public float would choose to buy back the small portion of shares in public hands and go private. However, in my view, there would be very few such instances. If some companies do choose to go private because a larger public float exposes them to greater public scrutiny, shareholders are better-off not owning shares in such companies. The Indian capital markets have come of age. A listing on Indian bourses is not just about raising money but perhaps more significantly for enhancing brand value – the recent ADR issue of Standard Chartered Bank is a case in point.

The exact gravity of the European debt crisis is difficult to understand by an ordinary person sitting in India. However, when an expert like Nassim Taleb has to say something in this regard, one should sit up and take notice. This is what he had to say to CNBC Europe yesterday

The economic situation today is drastically worse than a couple years ago, and the Euro is doomed as a concept

"We had less debt cumulatively (two years ago), and more people employed. Today, we have more risk in the system, and a smaller tax base.

Banks balance sheets are just as bad as they were two years ago when the crisis began and "the quality of the risks hasn't improved

The root of the crisis over the past couple of years wasn't recession, but debt, which has spread "like a cancer,"

The world needs to prepare itself for austerity. We need to slash debt.Unfortunately, that's the only solution.

Obama administration's efforts to pull the US out of recession haven't succeeded.It's not that they make mistakes; it's that they almost get nothing right. Moreover, a second major stimulus package may be futile

Obama promised us 8 percent unemployment through stimulus. It hasn't worked. There are significantly more liabilities in the US than in other countries around the world.Don't give a junkie more drugs, don't give a debt junkie more debt."

The key message from the above is that according to Taleb, who is now signaling that public attention has shifted to debt, instead of growth. This implies that even if growth comes on the back of high debt, capital markets around the world may not respond accordingly and may refuse to go up in a sustained manner. The other implication is that Inflation will hit the world hard if something is not done to slash the amount of money circulating around in the world.

For India, if the world slows sure there would some slowdown here too . How much? Only time will tell. We can predict only the earnings growth. Pre expansion or contraction is a function of the market not under our control and depending on risk , capital flows , perception etc. One lesson, which the Lehman crisis has taught me is that one should not ignore any possibility no matter how low the probability of that event happening might be . Further we all know that Murphy’s Law does hold some truth in “Whatever can go wrong will go wrong”

Inflation is a worry in India, we all know that . Apart from primary inflation even the non food inflation is not coming down. If Kirit Parekh’s recommendations are incorporated , it would only make matters worse on inflation

All these factors warrant some caution in the short term . I would look to lighten trading positions for the least . I remain extremely positive about the long term and one should not panic if he is a long term investor . For, the short term nonetheless, there may be some pain.

To my mind, European situation is not that precarious as it was in the US during the Lehman crisis. I know that there would be many economists who would vehemently disagree with this but I think US. Relevance of EU to world GDP growth, cross country trade and as a reserve currency is far lesser than that of the US. When there was question mark over US economic growth, the world panicked. However, the same situation may not happen when some European countries (PIIGS) default.

There could be a possible scenarios coming out of this. The trillion dollar rescue package for PIIGS comes with certain conditions to improve the fiscal situation. These countries will have to raise taxes, cut expenditure and go for a prolonged period of fiscal consolidation. If that were to happen, world might see low growth, benign interest rates and subdued commodity prices for a long time. This can also lead to reiteration of importance of the US. Capital is expected to flow back to enabling US treasuries and dollar to appreciate. Improved capital flows will lead to better reserve situation and stronger currency. Till some time back, there was apprehension as to how US will fund its growing fiscal deficit as the ability of the rest of the world to buy US treasuries was falling. That situation has suddenly got completely reversed.

For the world equity markets, one form of leverage might get replaced by another form. The dollar carry trade shall get replaced by Pound and Euro carry trade. In between, huge volatility is expected in the market.

The implication for India are that subdued commodity prices might result in earnings downgrade of some large cap index companies. However, as US becomes stronger and the contagion effect of EU is restricted, India might emerge as the favoured destination

In these circumstances, the following sectors could be winners ;

Financial Sector: Lower commodity prices, higher tax collections, PSU divestments and increased revenue from telecom industry shall result in lower than estimated fiscal deficit situation. Owing to low interest rates in most parts of the world, RBI too is expected to keep interest rates stable. These shall result in ample liquidity and stable interest rates in the domestic economy. Banks would therefore stand to gain from high credit growth and stable margin. The bond yields remaining low would add to treasury income. As domestic economy continues to grow, financial companies would emerge as the best play on India’s domestic consumption theme.Big banks like SBI or small banks like Dena Bank should outperperform

Auto: Market is cautious on the operating margin for auto sector this year. If commodity prices were to correct and stay subdued, auto companies may see earnings upgrades due to better than estimated margin assumption. Secondly, a normal monsoon, stable interest rates and liquidity in the banking system shall be beneficial for overall volume growth in tractors, two wheelers and passenger cars. We may therefore see earnings upgrades in auto sector and the sector shall out-perform.

Maruti should outperform the market. The margins can come under some sort of pressure as euro and pound sees some depreciation but higher volumes should keep profitability high

Cement: Twin concerns of Supply augmentation and drop in realizations is already factored in prices. What is positive for the industry is the higher demand. Cement demand in India has moved up from 8%-9% range to 11%-13% range. I expect demand to further accelerate due to increase infrastructure spending and private consumption on housing. Barring the monsoon period weakness, I don’t expect prices to correct further. My view is that cement companies will continue to make 25% EBITDA margin due to strong demand and drop in coking coal prices. At 12% demand growth, cement industry needs 60 mn tons of additional capacity by FY12. So, in our view the increased supply will be absorbed by the market without significant drop in realization. Cement has strong linkage with the domestic growth, valuation is reasonable and current sentiment is negative.

Shree cement can be big winner in these circumstances as apart from cement - in one years time additional 300MW of power capacity will come on stream and this would be on a merchant basis. Incremental EBIDTA could be as high as the current EBIDTA of the company (assuming a EBIDTA margin of Rs 3 per unit). It is one of the most profitable cement companies in India and available at very attractive valuations

In the back drop of the European crisis, I expect that world recovery will lose some momentum in 2010-11 but I do not anticipate that the recent turmoil in the markets will derail the global upswing. The implication for Asia is that the regional rebound will slow rather than stall and it remains likely that growth will stay far higher than elsewhere. Accordingly, Asian central banks will be focused on inflation. Policy rates will move up further and most countries will be nearing the end of their tightening cycles well before rate hikes even start in the US and in Europe. Finally,I would like to forecast that Asian currencies and stocks will end FY11 stronger and higher than where they finished in FY10.

In India, Q4FY10 has most certainly climbed following a weak Q3 which was caused by a slump in agriculture. In coming quarters, I expect that GDP will continue to climb at a 8-9% q-o-q annualized pace, even as fiscal stimulus measures are pulled back. There is very little spare capacity and corporate profitability is strong. Private investment should pick up while industrial output and consumer spending should be supported by ongoing infrastructure improvement projects, rapidly rising household incomes and increased bank lending

The Government is committed to cutting the budget deficit. The fiscal shortfall and the overall level of government debt at 82% of GDP remain quite high. Nonetheless, financing problems are unlikely. The prospects of continued high nominal GDP makes debt ratios manageable . The liabilities are also overwhelmingly owned by on-shore institutions. This means that India especially is not vulnerable to shifts in foreign investor sentiments . In addition ,the 3G license auction which generated almost double the target and the equivalent of around 0.5% of GDP, has also made the government borrowing programme less daunting .

I remain very firmly bullish. Bull markets works the best when doubted the most. With interest rates closer to zero and expected to remain so in the developed countries around the world for years, there is a limit to which equity markets can fall. Every correction should be used as a buying opportunity . Real estate stocks should surprise most analysts on the upside . Just wait and watch

Sensex :16,022(-2.71%) Nifty : 4,806 (-2.78%)
BSE MidCap: 6,489(-3.00%) BSE SmallCap: 8,176 (-3.43%)

Top Gaining Sectors: Nil
Top Losing Sectors: Metal, Consumer Durable, Capital Goods, Banking and Oil&Gas.

Market Moves:
Sixteen - Not so Sweet !!!
Weak overnight US cues, tension in Korean peninsula and further worsening of debt crisis in Europe were villains of the day. Stocks were sold off as fear gripped the bourses. All the sectoral indices ended in the negative. Sensex slipped below level of 16,000 for the first time since February 11, to marginally recover and end the session a tad above the sweet-spot.

I am building a bullish case scenario in India inspite of all the turmoil in financial markets around the globe. European markets are further down 2% today, as I write now. I am pretty confidant that inspite of sensex and nifty having broken the 200 dma, there is a very strong case for being on the long side of the market now. I would avoid commodities for sure, but would strongly look to buy consumer discretionary and consumer staple names in these panicky circumstances. I would think that markets may be very close to a bottom and these may god sent oppurtunities to buy especially for those who might have missed it earlier. I know that this is in sharp contrast to many people’s opinion in the market but this how I feel at the moment .I must also add that one should be buying only in the cash market from a medium to a long term perspective and not on the derivatives side

 

Looking at the fourth quarter results: As on 17 May 2010, 87 companies in our universe reported results for the March 2010 quarter. Aggregate performance is in line with estimates: Sales grew by 32% , EBIDTA grew by 27% ,and PAT grew by 23% .35 companies in our Universe reported PAT higher than estimate, 22 in line and 30 below estimate. On the EBITDA front, 32 companies reported above estimate, 31 in line and 24 below estimate. Among large sectors, Metals, Auto, Pharma, Engineering and Telecom PAT were above estimates, whereas IT, Oil & Gas and Cement were in line.On the sensex front, of the 20 Sensex companies that have reported March-10 quarter results, PAT aggregate is in line with estimate PAT growth of 13% vs estimate of 15%. (EBIDTA growth is 25% vs estimate of 29%).Thus quarterly profits are in line

 

 

In Europe, things are not as bad as it is being made out to be. The Union is not as indebted as one may think. Aggregate leverage in Europe (consumer, corporates and government) at 220% of GDP is below that of the US (270%), the UK (300%) and Japan (363%). The savings ratio in core Europe is 6x that of the US. The problem is the distribution of the government debt. Hence, from an economic point of view core Europe can continue to finance transfer payments to the periphery. To stabilize government debt-to-GDP, fiscal policy has to be tightened by 3% of GDP in the Euro-area as a whole, but by 7% to 8% in the US, Japan and UK (assuming a normal economic recovery). The relentless fall in European markets may be  more on account of technical factors like ban on short selling certain securties, imposition of tax on securities transactions etc .Again, If interest rates in the G3 are going to be closer to zero, there is not too much that equity markets can fall in these regions as well.These things will automatically get corrected sooner than later

 

In China there is monetary tightening to slow down the economy and that is why commodities are falling. However, I  feel that one should not take a country sitting on two trillion dollars of reserves too much for granted. They can do anything .Commodites are therefore best avoided for the time being.

 

In India, the fiscal situation may have just got somewhat better .The 3G booty has given the government enough elbowroom to manouvre around the fiscal deficit target of 5.5% for FY11.Structural reforms on the oil and gas are happening and more of these are in the offing, monsoons seems to be on track and domestic demand pretty strong as reflected by consumer confidence indices

 

So the moot question remains -Why should one be so bearish?Haven’t we seen markets before that Indian markets always fall because of global reasons and always rebound very strongly due to local reasons . It is only a matter of some time.

Telecom regulator (TRAI) released drastic recommendations on spectrum management and licensing framework this week. The recommendations propose significant changes including:

(1) One-time pay-out for spectrum allocation beyond 6.2MHz for GSM operators,

(2) Hike in annual spectrum charges (linked to revenues),

(3) Significant pay-outs for spectrum (linked to 3G auction winning price) and return back of spectrum allocated in 800MHz (CDMA) and 900 MHz (GSM) on license renewal,

(4) Phased decline in license fee (charged as a percentage of AGR),

(5) Tightening of roll-out obligations,

(6) Linking of spectrum allocation beyond start-up spectrum (4.4MHz for GSM and 6.2MHz for CDMA) to roll-out obligations (vs. subscriber base currently), and

(7) De-linking of future licenses with spectrum.

 

Most of the recommendations, except proposed decline in license fee and incentive for rural coverage, are negative for incumbents. The recommendations, though subject to approval by the department of telecom (DOT).are retrograde in nature. It will bring down the overall profitability of the sector in a major way. Already the sector is in big stress and these new regulations will be like a nail in the coffin. I fear the sector might be headed the airlines way depriving it of the necessary investments….something which the country badly needs.

 

Additionally, gold has touched new 52 week highs, metals remain very weak and crude oil has broken $ 75 on the downside. All of this is plating out as anticipated before. Internationally steel scrap prices  have started falling in some markets following a sharp global run-up from the end of 2009.Scrap prices are a leading indicator of the steel demand and the decline in the scrap prices could therefore signal a coming slowdown in the global demand growth for steel .Steel stocks should therefore be sold or shorted as a fresh trade

 

Industrial output expanded by 13.5% yoy for the month of March .manufacturing expanded by 14.3%, Mining by 11% and electricity by 7.7%.Overall, FY10 was characterized by a sharp recovery in industrial output, I expect this momentum in industrial output to be maintained for FY11 driven by strong economic growth particularly in the agriculture and the services sector. As far as monetary policy stance of the RBI is concerned, I think they will continue with baby step increases in policy rates slowly and steadily. Nonetheless, if inflation shoots up due to global conditions or hike in fuel prices, they might tighten rates very swiftly and sharply. Immediately, this does not look like happening

 

 

From my perspective as an analyst, the past week has been tedious because financial markets have been reacting to "headline risks” rather than the long term underlying fundamentals of the economy. Of course, financial markets are always pricing in new and unexpected risks, so this is nothing new. However, the intensity of the situation in Europe (i.e., Greece) and Washington (i.e., financial regulatory reform) makes rational assessment difficult because of the nature of the situation.

Specifically, it is hard to assess how politicians all over the world will make and implement decisions that will have a significant impact on all economic activity. The uncertainty about those decisions is high and the resulting uncertainties will weigh on investment decisions until clarity is achieved. It can be interpreted that the liquidity will become a major issue for global markets going forward. Corporations may find it difficult to hedge against important risks or alternatively, may find that the cost of doing so will rise significantly.

All near term indicators remain bullish, but there has been a diminishing of the positive signal over the past few weeks. This reflects the pullback in risk-taking that occurred since mid-April. It is worth monitoring for further deterioration.

Some of the indicators which could be looked into are as follows

1) The Yield Curves of the G3 nations remains near cyclical and historic highs, but has flattened by 25 bps since early-April. The current steepness of the curve is still indicating a sustained global recovery, but the signal has diminished slightly.

2) The real yield in the US, as proxied by the 10-year TIPS, has fallen by 39 bps since early-April. The 10-year UST yield fell 25 bps over the same time period, which means that the inflation breakeven has risen by 14 bps. Slower growth and higher inflation is not good for financial assets. It is worth mentioning that real yields reflect expected rates of return on capital. Falling real yields are bearish and rising yields are bullish, all else equal.

3) The Industrial Metals/Gold Ratio has fallen by 9% since mid-April. Industrial metals are sensitive to business cycle demand while gold is not. The 9% decline in the index was caused by a 6% decline in the industrial metals index and a 4% increase in the price of gold. Again, this is indicating slower growth and higher inflation on the margin. The Metals/Gold Ratio is up 33% from a year ago. The recent 9% decline does not indicate a reversal of the bullish macro environment. However, the entire commodities markets remain very tentative and vulnerable

To sum up on the markets, I maintain my bullish cyclical view with positive implications and cyclically sensitive industries except commodities. I believe that the recent pullback in stock prices last week is an excellent opportunity to buy.Banks, autos and capital goods are good bets at this point in time

Additionally, the Honorable Supreme Court pronounced its judgement in the RIL-RNRL case today .The principal points on which the apex court laid out clarity is that promoter / shareholder agreements is not be binding on the corporate entities behind them or for that matter the government .Second, natural resources are the assets of the government and it will have a final say in the quantity and price at which it is to be consumed, irrespective of policies and regulations at that point in time or future policies/regulations which might come . This judgment, to my mind could have immense implications for Corporate India going forward. It could also impact bidding amounts for future NELP auctions

The judgement went in favour Reliance Industries. To that extent, there are is a positive implications for the stock . Also there may be excellent value in Reliance Infra (even after subtracting Dadri from the SOTP valuations) at lower levels.

The crisis in Greece crystallises the worries about the dire state of the public finances in many countries around the world. The fact that a Greek default is even considered possible is a fundamental shock to confidence in the world order. For a start, Greece has been seen as an advanced economy, if only by virtue of its membership of the euro-zone. As such, the shock value of a sovereign default in Greece could be much larger than the frequent defaults in emerging markets. We have to wait and see the events unfolding till May-19th (the day by when Greece should have paid 12 billion dollars to her lenders)

What’s more, the pressure will inevitably increase on other weaker members of the monetary union, notably Portugal, Ireland and perhaps Spain and Italy (PIIGS). That pressure would be all the greater if Greece were to leave the union and then, in time, be perceived to be doing better outside than in. The contagion from a Greek default could also spread to much larger economies where the public finances are also fragile, including the UK and, perhaps the biggest risk of all, Japan.

What’s more, even if Greece is rescued, the appetite for another bailout would surely be limited. Greece might therefore end up as the next Bear Stearns – the last to be bailed out before patience finally runs out, and some other country is allowed to default.

The dollar is also likely to strengthen further. Indeed, safe haven demand for the US currency is likely to be even greater than it was in late 2008 given the concerns over the future of the euro and the much worse state of the public finances in Japan.

The Greek crisis could also be the catalyst for a long overdue correction in the prices of most commodities. Many participants in these markets seem to assume that the world economy is returning to the strong growth that fuelled the commodity price boom from 2004 to 2007 as if nothing has happened in the meantime. In contrast, I expect big falls in commodity prices especially crude oil and copper. While this may good news for consumers, a collapse in commodity prices could be a big shock for financial markets. It could be very bad news for many emerging economies including India.

It is surely now or never for gold. Safe haven demand should be strong and rising given that gold is not dependent on the creditworthiness of any government. Despite this, current gold prices of around $1163/oz are still some way below the peak of $1227/oz seen in December last year. Gold’s failure to set new highs in dollar terms most likely reflects the resilience of the US currency, still-low inflation and the lack of any new impetus from central bank buying. Prices would spike higher in the event of an actual Greek default. But, gold may fallback to much lower levels by year-end as the dollar rises further and global deflation fears return.

Back home, economy is on an upswing, inflation remains stubbornly high, and RBI has started to lift policy rates. Worries over contagion from Greece have curbed the rise in Asian markets including India, but Asia has deleveraged since its mid-to-late 1990s crisis and there is not much to worry. Rollovers have been strong at 82% indicating that markets are likely to remain strong in the near future.

80% of people who fail on the job fail due to lack of interpersonal skills – not lack of technical skills

A senior executive is fired after a run-in with the Board of Directors. An ineffective team leader is given a new team to manage – the team mutinies. An employee is reprimanded after losing her temper with a customer. Three different individuals, three unique situations, one common problem: Getting along with others.

According to noted author and sociologist BJ Gallagher, 80% of people who fail on the job fail due to lack of interpersonal skills – not lack of technical skills. That’s the specific problem Gallagher addresses in Getting Good at Getting Along – a helpful new guidebook that’s jam-packed with proven techniques for maintaining productive working relationships. One of the many ideas from this work that got my attention is taking TOTAL responsibility for the relationships we have with others (see excerpt below). A novel idea that, when you really think about it, makes a lot of sense. Give it a try – encourage your people to do the same. And remember …

Whether you and your people work in a large corporation, a small business, or a non- profit organization, your work involves dealing with people. Organizational life is all about bosses and employees, teammates, peers in other departments, customers, vendors, clients, and other stakeholders. Your ability to get along with them is the single most important factor in how well you get along in your career! If you want to be successful, you must get good at getting along.

Lead well ... LEAD RIGHT

 

Excerpt from Getting Good at Getting Along

Many people say that the best relationships are those that are 50-50. It’s a nice idea, but it often falls short in real life. People hold onto resentments – waiting for the other person to “see the light.” People insist that others take their share of responsibility when an issue comes up: “I’ve done my part; now it’s their turn.” The problem is, you might be waiting a very long time if you always insist that relationships (and their problems) be 50-50 propositions.

If you’re really serious about getting good at getting along with others, here’s an idea that can transform your life: Instead of expecting people to meet you 50-50, try making it 100-0. You take on the entire responsibility for making the relationship work, and don’t worry about whether the other person is doing their part!

Yes, it’s a somewhat radical idea. But if you’re up to really having amazing relationships at work – and in your personal life – this will do it. You’ll never again feel that you’re at the mercy of someone else. You’ll never feel like a victim of another’s actions or inactions.

Here’s how it works …

• Assume that the other person is a given. “He is who he is.” “This is her personality – she isn’t going to change.” Just accept the person exactly as they are – and exactly as they aren’t. This is who you’ve got to work with.
• Ask yourself, How can I change my words or actions when I deal with this person? You don’t have to change your whole personality – you’re just going to use different language and behaviors when dealing with this person.
• Try out new behaviors and new ways of conversing with your “problem person.” See what works and do more of it. If something doesn’t work, stop doing it.
• Learn from others. Watch others who have excellent interpersonal relationships and learn from them. If you want good relationships like those, mimic them.
• When there’s a problem, take ownership of it. As long as someone else is the problem, you’re powerless. But if YOU own the problem, then YOU can own and control the solution.

 

The RBI’s credit policy for FY11 was largely on expected lines, but the quantum of hikes was lower than expectations of few market players. The latest monetary measures and policy review clearly reflect the increasing emphasis on reigning in inflationary pressures. While, economic growth has been strong; the central bank highlighted possible risks due to an uncertain global environment and erratic monsoons. The RBI has highlighted the shift in the composition of inflationary pressures from supply led constraints to demand led factors. Increased capacity utilization and higher global commodity prices are also concerns. The higher credit growth expectations seem to be in line with the 8% GDP growth expectations (with an upward bias). The economic growth is expected to be spurred by strengthening exports/service sector activity; increased fund raising activity, and improved corporate profitability

The strong economic growth and the potential for relatively higher earnings growth has led to increased fund flows into India leading to a strengthening of the currency. The ultra accommodative monetary policies in the developed world should lead to increased inflows into emerging market economies like India with strong growth prospects. The RBI doesn’t seem to be overtly perturbed about the quantum of flows, given the strong absorptive capacity of the economy compared to the past.

Also, given the lingering global concerns, RBI appears to be taking a sanguine view on inflationary trends by the end of FY11 and doesn’t want to impact the current growth momentum. The new norms for infrastructure-related companies and securities appear to be in line with this thought process and are aimed at boosting investment activity.

Bond yields eased from highs and closed below yesterday’s levels as the quantum of rate hikes was less than expectations of some market players .Equity markets have gained during the week due to absence of aggressive monetary tightening with interest rate sensitive sectors in particular moving up very sharply.

Outlook on the market remains that inflation and global oil prices will continue to determine market sentiment and direction.Nonetheless, bulls have an upper hand .I don’t see the rate hikes impacting upward direction of the markets just yet.However, inflation remains a overhang . One must also understand that inflationary pressures are still largely due to the low base effect and supply constraints along with poor rainfall last year . I learn from various reports that inspite of droughts last year, food grain production in FY10 has matched that of last year-thanks to a very good Rabi harvest . This instills some hope that inflation may not be allowed to go out of control due to better supply- chain management by the government.