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The Business Cycle Indicator has register steady incline since April 2014. The BCI is a measure of economic activity and leads the index of industrial production (IIP) estimates. The incline suggest a revival in the Indian Business environment. The nation’s economic fundamentals, which form the basis of the BCI, have started turning around at varied speeds. However there are various factors which can severely dent these fundamentals like hot money, inflation and deficit.

Foreign institutional investors (FIIs) play a big role in determining the movement of the Indian stock markets is a fact well known. One need look no further than the 2008 crisis which saw Indian indices plunge on account of huge FII outflows. The reverse also holds true. In the last few months, India has become a hot destination for FII money. Indeed, an article in the Economic Times states that foreign flows may top US$ 50 bn by 2015.

So among the BRIC countries, what has led to FIIs making a beeline for India? One is on account of geo-political tensions in Russia. Because of this, a lot of money is being pulled out of Russia and is finding its way into India. Continued low interest rate policies in the US and Europe have also compelled FIIs to look for better yields and hence the preference for emerging markets including India.

There has been no drastic improvement at the ground level. And yet FIIs have continued to pour money into the Indian markets largely based on expectations that the Modi government will deliver plenty when it comes to reforms and development. So the rise in the BSE-Sensex so far has largely been a rally based on expectations rather than improving fundamentals.

The government has emphasised its intention of bringing the deficit as well as inflation down. As far as the fiscal deficit is concerned, it has set for itself some ambitious targets till FY17. Bringing inflation down would also pose a challenge. This is because food prices so far have been the major culprit. For the current government, bringing inflation down is not something that can be achieved by short term measures but would involve considerable thinking on how to bring about structural changes.

USDINR : As expected USDINR has witnessed a strong resistance at 61.40-45 levels and came down from there to 60.65 today. It can test 60.30-60.45 levels in coming days. There we should look to book profit on our shorts and start building longs.

Disclaimer

These deal indications are only advisory in nature and may not be true in 100% cases. Read more....