My thoughts on the Market......

World Markets
So far not much is perceived to have come out of Obama's promised financial and Economy boosting miracles. Stock Markets continues to trade in a range and are still awaiting the major trigger (Positive or Negative) to take further direction.

Meanwhile some bit of optimism was generated from China introducing some more measures for boosting its economy, by reducing import tariffs on raw material and components imports.

Bank of England in meeting scheduled for today is expected to cut its key rate to 1% (eventually heading towards zero percent).

However I still feel that we are yet to see the worse and while it comes it may stay and last for longer period, then most of us are expecting.

India :

As expected Inflation rate headed down and for the week ended Jan 24 it dips to 5.07%, down from its previous week level of 5.64%. The effect of the second recent cut in the fuel prices (following the weak global oil prices over last few months) will soon be reflected in the WPI. Headline inflation rate is expected to touch sub 3% level by Mar'09 end.

Bond yield spread between the bench mark 10 yr Gilt and AAA rated (PSU & Private) is also expected to contract from current 3.5% - 4% range to 2.5% - 3% range over next 6 to 9 months. This gives opportunities to ride the expected rally in AAA bonds, mainly for two reasons - one expectation of fall in overall interest rates over short and medium term and second due to expected reduction in spread levels between Gilts and High quality traded bonds. For most of the investors, using the Income fund route will be the better option to invest (advantage of holding a diversified bond portfolio) and selecting those fund schemes which have bias towards holding PSU bonds (to minimise credit as well market risk). (Word of caution: Borrowing program of Govt. over next few weeks / months, can distort the yield curve and it may also results in crowding-out of Non-Govt. borrowers, mainly PSU & Pvt. sector borrowers and thereby lead to increase in overall interest rates).

With Qrtly results seasons been over, corporates as well as investors are bracing up for tougher time ahead, as next few qtrs. will continue to be challenging for India Inc.

Next week's Vote-on-Account Budget is expected to be populist, with the ruling party keeping a eye on forth coming General election (Apr09-May09). It not being a full fledged union budget, no changes in the taxes rates will be announced.

Market has also build-in the political risk, as no single party is expected to gain majority and projection of likely composition of the future multi- party Govt. ,is still blur.

All in all, it is time to sit on the side line as far as stock market is concerned and try to cash in on the expected rally (even though marginal) in Gilts and Fixed Income products.