MUMBAI: The recent rally across the global markets has surprised many analysts and economists, as they were of the view that the worst was still to come.

Measures taken by world central banks–cutting interest rates to their lowest, infusing trillions by way of stimulus packages, and buying of toxic assets from the debt ridden banks and corporate–seem to be having the desired effects. This, in turn, has improved sentiment which is reflected in the markets gaining in recent times.

“I think we have already seen the worst of the crisis. Although the economy is still not working the way it should, people can see that it’s getting somewhat better, and it seems that we will not fall into a depression,” said Vishal Doshi, fund manager at Spark Advisory.

But at the same time, the various government measures have increased the threat of deflation with falling inflation and rising job losses and raised questions over the sustenance of the current rally.

Some economists and analysts believe that speculation that the health of the global economy may revive in near term on the back of Chinese stimulus spurred the rally. However, few others don’t think a China-led global recovery is on the cards.

“The aggressive lending is likely to impact China adversely in the mid term. When China issued directives to its state-owned banks for aggressive lending, it was an open invitation for local big-wigs to drag out their favourite pet projects. We have already seen in the US how an aggressive lending of loans creates critical mass of bad loans and which can take an economy down. And now China is also walking on the same path,” said Jonathan Paul of Krug and Bordman Advisory.

On the domestic front, Paul said, “India, though has a strong domestic economy and is relatively better placed in the current global recession, it can’t decouple from the global recession. The Indian markets have not rallied on any concrete development in the real economy; rather it was the global markets which gained on China’s stimulus.”

“Markets are likely to consolidate in 3100-3500 levels (on the Nifty) before giving a breakout either side. However, the consolidation phase is seen longer as the general elections are likely to define the future course. Until then traders should play with the momentum and avoid trading aggressively without stricter stop losses. For positional investors it’s a good time to book profits and recover the initial capital,” Paul added.

“Real economic recovery is still far off and it will take a long time, may be couple of quarters. The gains we have seen in the markets are very steep and sudden. High liquidity is the only reason I can cite for the current surge in the equity markets. I expect our markets have peaked from the short-mid term perspective,” Spark Advisory’s Doshi said.

source: Economictimes

Tags: banks, bse, consolidate, inflation, market, nifty, nse, rally, sensex

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