We have the good news that at last we have a government with a single party majority and that it cannot be threatened by any other party of pulling out support for its survival. The UPA government has formed the government after getting a total seat tally of 322 and most of the parties that have given the support are unconditional support. This means that no one can hold the government at ransom of pulling out the support which 5 years back was a reality. The last government was holding on to its clutches to stand and walk forget running. It is the second time in history of Indian politics that after Nehru, Dr. Manmohan Singh has become the prime minister for the second time consecutively after serving full 5 years in service. If I am not mistaken he is also the most highly educated prime minister that we have since our independence. Also one thing is worth noting that this time we have many young ministers in the cabinet which no doubt the efforts of Rahul Gandhi.
Strong rumors have been circling in the market now that the petrol prices will be raised by Rs. 2. which I am had mentioned in my previous articles that the government will do it. The reductions were one of the tactics used by the government for the coming elections to be in the good books of the people. Now wonder what will happen with the inflation?? History has been created in lot of things when the new government was announced. The sensex shot up by 2000 points and in the whole day it traded only for 1 ½ minutes which itself is history and above that it has so happened that the markets hit upper circuit which will be mentioned in bold letters for years to come. The optimism of the investors was quite evident with this. Now the only regret all the investors are facing is that they missed the opportunity to invest at the lower levels as they were scared of doing so which is quite reasonable. The rain gods have been showering on us now. The first initial rains have hit most of places in India. But these rains are not the onset of monsoon as yet as they are just because of the extreme heat conditions. The clouds are heading in time and there does not seem to be any reason to worry as of now.
One thing that also has to be noted that the day the markets hit plus 2000 points the rupee went from 49.48 to 47.33 which is good news for the importers but not so encouraging for the exporters. Infact surprising thing was that even if the rupee strengthened to such an extent Infosys which is a major exporter of software was up by Rs.200. the next support levels that will be coming through will be at around 46.70 to 46.50 levels. Suddenly the demand for dollars from the FII’s came in with the optimism in the market that it is getting difficult to get dollars in the market. Infact the premium are running around Rs. 1.5- Rs. 2 on every dollar purchased in cash.
Lot of adjustments had to be made in the prices in most of the commodities too with this rise in the rupee. International crude prices were up by $2 but it was the rupee that did not allow it to go up on that day. Gold came down from the high of 14719 to 14180 in a day itself. That fall in price cannot be attributed to the fall in gold prices as on that day the prices of international gold were down by only $15 which does not equate to a fall of Rs. 500 in the prices of Indian gold. It was because of the rupee we witnessed such a huge fall in gold prices. It was the euphoria that made most of the commodity prices to come down as the prices had to adjust with the international prices with respect to the rupee. The fundamentals are not yet in place for the commodity prices to react as of now. As I said earlier that when the rains set in the new fundamentals will be in place then. But please do not be under the impression that the dollar has weakened. The dollar is still holding strong against all the other currencies. The movement in the rupee was plainly because of the demand from the FII’s to make fresh investments in India. It does not make a major impact on the dollar. Dollar itself is giving a new opportunity now to trade and make some money out of it. If you can trade dollars on mcx then I can suggest a trading strategy of buying dollars with a stop loss of 46.01 on closing basis and keeping targets of around 52.10 to 54 which I guess can fetch some good money with a minimum loss. If you cannot trade on mcx then you can buy dollars in cash too. It may take some time for the rupee to make this movement but it will be worth the wait. However disturbing it may be that the rupee will weaken but the fact cannot be ignored completely. It will be the dollar that will be making a turnaround at that time and hence this will affect the rupee too along with all the other world currencies.
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