Sunday, October 30, 2011

Inflation Rate Projection by RBI

Here is the inflation chart taken from RBI website and RBI is Projecting a baseline WPI for 2012 at 7%

Am not sure how they are going to bring this to medium term objective of 3% consistent with india's integration into the global economy.

At least from the past two years RBI has failed in containing the inflation and there inflation targeting is a failure as they didn't contain it.

Lets see if at least they can manage atleast 7% for this year coming from a very high base rate of last year

Comments :

Revisiting this post in october 2012 and inflation crosses the upper band as projected by RBI. It looks like RBI utterly failed at controlling the inflation in 2012 also. Shame on them

Notes from RBI Post Policy Press Conference Call

Here are some notes taken  from RBI Post Policy  Press Conference Call

  • RBI  monetary policy is determined independently of the government borrowing requirement to certain extent
  • As Fiscal deficit is a variable in inflation, RBI takes into account of Government borrowing requirement   while estimating  inflation numbers, in projecting inflation outlook and in calibrating RBI policy.
  • RBI will not use exchange rate as an instrument for inflation management with recent depreciation of the Rupee has added to inflation pressures but this depreciation is not due to any change in our economic situation, it is due to factors outside of India 
  •  Because it is factors outside of India, it might reverse in course of time when the external situation will have adjusted back.
  • There is  the issue of the prepayment which banks are charging, which they should not do. RBI has asked  banks to look into it waiting for a response from banks
  • This was the main point in the 10 point formula recommended by Damodaran Committee 
  • RBI feels the level of fiscal deficit is going to be one of the risk factors in the inflation outlook
  • So if the government conforms to 4.6% that is, one level of risk, but if borrowings go beyond that and the fiscal deficit exceeds that, that will increase the risk for inflation because fiscal expansion is inflationary. 

Here are the Risks to inflation

  • One is  fiscal deficit,
  •  Demand pressures and how they might respond to the monetary policy action that RBI took 
  • Issue of commodity prices, especially in oil price how that might settle because it’s not moderated as much as it should have, given the global situation. In these last few weeks inching back up, so the gain or comfort from the oil prices has not been very much. 
  • Then there is this structural food component. There is also suppressed inflation.
  • The electricity prices have not been adjusted because coal prices have not been adjusted.
  • Petroleum sector prices have not been adjusted, and they do not reflect the current international price. Those are all the variables on the inflation outlook.

Friday, August 19, 2011

Is it the right time to buy stocks?

"Is this right time to enter the market?" is the question which keeps on coming to my mind. Should I wait for some more time? or Should I enter with some percentage of my allocation at this time?. With global data like phile Fed index, crisis in euro region, bond yields in US, inflation in India etc., shows very gloomy days ahead. Should I still go ahead and buy few bargain stocks. I know it's better to buy into stocks at 5000 levels than at 5700 levels trading in May-June. But how do I determine which stock I need to buy?

If you consider US economy slowing down and EURO crisis coming back which sector should be looked into? IT sector got badly hit by news of US slow down, Banking sector got hit due to worries within the sector. Real Estate as we know is rate sensitive and recent RBI hikes and the anticipated hikes in the future will only make the sector more vulnerable. Automobile sector also got badly hit by the hikes and low sales in June-July (btw do you see a lot of Ads related to automobiles offering discounts on TV)

I think, the best option right now is to pick out individual stocks rather than going for a particular index.

Few stocks which impressed me after seeing  stock ticker on a news channel are Suzlon(huge debt), Educomp(recent IT raids), TCS, Lanco Infra...Lets see if I can make some progress over the weekend :)

Tuesday, May 24, 2011

Core vs Headline Inflation

What is inflation? Why do we care so much about inflation? Inflation is a sustained increase in the overall level of prices. Since price stability is a key objective of monetary policy, central banks are obviously concerned with inflation. Prices of specific goods or services may go up or down relative to the prices of others reflecting changes in productivity or demand and supply conditions. But when the overall price level rises, it erodes the purchasing power of income, raises the cost of living and lowers the real value of savings. Savers, investors and financial intermediaries track closely the link between inflation and interest rate. The level of inflation is also critical in terms of maintaining competitiveness of domestic industry in a liberalized trading and market determined exchange rate regime. More importantly, it is the poor who are most vulnerable to inflation as they do not have any effective hedge against inflation. As Keynes said, "Inflation is the form of taxation which the public find hardest to evade." Thus, the issue of inflation and its measurement have always received lot of attention in India.

Currently, there are five different primary measures of inflation – the Wholesale Price Index (WPI) and four measures of the Consumer Price Index (CPI). In addition, Gross Domestic Product (GDP) deflator and Private Final Consumption Expenditure (PFCE) deflator from the National Accounts Statistics (NAS)
provide implicit economy-wide inflation estimate. The WPI is considered as the headline inflation measure because of its availability at high frequency.

While the WPI does not cover prices of services, CPIs are meant to reflect the cost of living conditions for a homogeneous group of consumers based on retail prices. Among the four measures of CPI, the CPI for Industrial workers (IW) has a broader coverage than the others – the CPI for agricultural labourers (AL), rural labourers (RL) and urban non-manual employees (UNME). In the organised sector, CPI-IW is used as a cost of living index

GDP deflator, on the other hand, is a comprehensive measure of inflation, implicitly derived from national accounts data as a ratio of GDP at current prices to constant prices. While it encompasses the entire spectrum of economic activities including services, it is available on a quarterly basis with a lag of two months since 1996. Moreover, national income aggregates extensively use WPI for deflating nominal price estimates to derive real price estimates.

Divergence between WPI and CPI

Why do WPI and CPIs differ? They differ in terms of their weighting pattern. First, food has a larger weight in CPI ranging from 46 per cent in CPI-IW to 69 per cent in CPI-AL whereas it has a weight of only 27 per cent3 in WPI. The CPIs are, therefore, more sensitive to changes in prices of food items. Second, the fuel group has a much higher weight in the WPI (14.2 per cent) than the CPIs (5.5 to 8.4 per cent). As a result, movement in international crude prices has a greater bearing on WPI than on the CPIs. Third, services are not covered under WPI while they are, to different degrees, covered under CPIs.
Consequently, service price inflation has a greater influence on CPIs.

More on inflation can be found here

Friday, May 13, 2011

Cast of Carry on Nifty Futures

Market opened at flat in the morning at 5480 levels, But as the news of Left thrown out from kerala and WB Market reacted in a positive way and moved till 5560 till 12:00. With Europe Opening in Positive and News of interviews related to more Reforms led the market to cross 5600 Levels and after more than one week NIFTY quoted at 15 points premium to Spot, which is good sign that people are buying.

By 3:00 Traders started to exit there positions to gain from 100 points rise and market cracked a bit , but what is surprising is the premium at which NIFTY is Quoting to SPOT at close

Nifty Futures were Quoting at 5580.85 at close while Spot is 5540 a 40 points premium which is never seen by me .Does it mean Market will go up in coming days? lets see how it unfolds in coming days.

But what is surprising more is the Cost of Carry which is at 8.1 which led me to this post

Theoretically The Futures Price = Spot Price + Cost of Carry.

Looks like Theory is thrown in dustbin for today :)

Will post more once my blogger is up

Pradeep Reddy Lekkala

Thursday, April 28, 2011

Nifty in Coming Days

Here is the analysis of Nifty in coming days after today's expiry.
On the Options front we can see lot of unwinding happened at 5800 and 5900 PUTS in April Series. Going forward to May series Traders made positions at  5700 ,5600 PUTS means in coming days market might reach these levels on Downside  with Huge OI at ,5600 PE  levels means we have Strong Support at 5600 in coming days  and  on the Upside we have 5800 ,5900,6000 Call Writings, With huge OI at 6000 CE levels means 6000 will act as Strong Resistance for the next week

Thursday, March 24, 2011

Volatile Trades on SGX

 Something unusual happened on Nifty Futures Traded at Singapore Exchange, There are couple of volatile trades can be seen from the high and low prices registered .As today is expiry for derivatives one can expect market to be volatile but +5% to -5% a swing of 10% on a normal day is bit abnormal. We will see if we can get any information from google on how those trades happened. I will be crossing my fingers as am having a one side position on market

SGX QUEST Trading Hours: Mon-Fri 9.00am - 6.15pm
SGX QUEST (T+1) Trading Hours: Mon-Fri 7.15pm - 1.00am
  Contract Month Last Chg From Prev Settle Bid Ask Open High Low Close Vol Open Int Prev. Day Settle Settle
E  Mar  11 5,538.50 +35.50 5,537.00 5,538.50 5,524.00 5,799.50 5,273.00 - 12,271 216,849 5,503.00 -
E*  Mar  11 - 0 5,483.00 5,650.00 - - - - - - - -
E  Apr  11 5,551.50 +29.50 5,556.00 5,559.50 5,539.00 5,587.50 5,500.00 - 1,602 1,521 5,522.00 -

Sunday, January 2, 2011

Market Direction in the New Year

Markets went into New year in good move. Nifty started 2010 at 5200 and ended at 6134 primarily because of global recovery and its impact on domestic recovery (consumption,manufacturing,imports etc..) and Strong FII flows into EM's which gave an 18% Return.

Nifty Started Jan Option Series with a Good move on  Friday. A Lot of PUT Writing Happening at 6000 Levels and can safely say for now that 6000 is good support for the upmove which  started from last week.

Good amount of CALL Writing also happened at 6300 levels which clearly acts as resistance for now. Also on 31st December PCR value is 1.29 for Index Options which indicates a lot of PUT writing happening when compared to CALL writing and NIFTY is in upmove atleast in the near term say for the next 1-2 Weeks.

Another interesting thing in the current series is NIFTY Rollover seen at 61.2 % which is very low compared to previous month of  75 % and rollover numbers say that not many participants are taking the positions which they had in December. But overall JAN Market wide rollover is at 84.5% compared with 85.5% in DEC Rollover and that looks like a good sentiment in contrast to Index Rollover positions.

Once the inflation numbers comes up next week and if that is in uncomfortable range then RBI will be going for Rate Hike which might hamper the sentiment on the street.

Call writing is a branch of options trading strategy involving the selling of call options to earn premiums.
Put writing is a family of options trading strategies that involve the selling of put options to earn premiums.