ELECTIONS OVER..TIME TO CHANGE THE FORMULA

Inflation calculation had been a joke since the very beginning. The government has used this tool so easily to mislead the common people. Last week the inflation or I should say the deflation was -1.61%. This has been the second time that India is facing deflation since 1977. On 21st Aug 2008 inflation was at the high of 12.63%. I have been stressing in many of my articles in the past that the inflation calculation system is completely flawed. I seriously fail to understand the joke played by the government of tactfully changing the basic rules for inflation calculation. They simply keep jumping from one commodity to the other and replacing them with so ease that a common man is simply unaware of it. How can it be possible that crude prices are at $70, petroleum minister talking of increasing the prices of petrol and the country facing deflation? Are you seriously convinced that such a thing is possible?? The government is still not ready for free market price discovery system as yet. The government is so scared of even futures trading that it has still not taken the decision on options trading in commodities market. Commodity futures markets are still in experimentation stage to be very true.

There are very serious reasons for it. India is an agricultural country and with agriculture ruling most of the parts of India, the government has to keep the farmers happy to keep their vote banks full all the time. The commodity markets claim that they are a free market price discovery system, then why do they ban certain commodities? Take the example of wheat, when they were sure that the prices of wheat will go up due to shortage of crops they banned trading in it, because- now read this carefully “wheat was one of the components in inflation trading”, which obviously was removed from the inflation basket later saying that common man cannot afford to buy wheat so remove it from the inflation basket. The other best example is of the recent ban of sugar futures. Two months back sugar prices were rising as if there was not tomorrow saying that the crops are going to be less. But as soon as they realized they were wrong in their estimates that the crops are going to be huge they banned it fearing that the prices will fall and hurt the market which again hurts their vote banks. Now do you really feel there exists the concept of “free market discovery”. Sugar again is a part of inflation calculation basket, or not now you simply don’t know. The government has simply not been consistent of the basket of commodities forming the basis of inflation calculation.

The equity markets used to react with the inflation figures so the government changed the time that the inflation figures come in. initially the figures used to come in the afternoon during market trading hours then they changed it to the evening so that the equity index do not take ugly turns during the day because of the inflation figures. Now they are talking about changing it to monthly rather than weekly. It will be really good if the government does not give out the inflation figures at all. I guess that the common people have become smart enough to guess the inflation figures with the prices that pay in the supermarkets now.

The rains have been delayed this year, which I don’t think so is cause of worry for the time being. Of course the city of Mumbai is scared because then we face the shortage of water supply. As far as the farming sector is concerned there is no worry as the rains are setting in this month itself. The MET department has been saying that the rains would be coming in by 25th of this month, which I feel is going to be earlier than that. The satellite images show a strong probability of rains by this week itself before 25th. I am talking about Maharashtra so by the end of month Gujarat too will be having rains coming in with a bang.

This week my focus is going to be on base metals. Right now base metals are at such a turning point that it will the last stage of their corrections. What I am trying to say that very soon the fall in base metal prices will start getting over and they will turn to start their new runs very soon. Now I do not want you to be mislead by my saying that the prices will shoot up in a very short period of time. They will go up systematically and at their own pace. All I will say that there won’t be a mad rush in the demand nor supplies but they would be balanced to much of the extent. So the climb will not be steep but stable returns can be guaranteed in holding long positions. Do not make the mistake of buying them now as they will still take more than a month to give their first confirmations of getting into the bullish phase. The reason is very simple and is very much visible in the market. I have been quoting this in my previous articles and also this time I would like to say that “the American economy is getting better day by day” and in no time soon we are seeing that the economy is getting better and that is quite visible with the stabilized Dow Jones. Dow jones has risen from the low of 6469 to the high of 8877 within 14 weeks continuously without a break. If you can have a look at the weekly chart of dow jones then it is clearly visible. Now do expect some correction in the index which is not a concern of panic anyways. It will be a normal correction for a new stabilized rally. The same is the scene with the Indian markets too. If you look at the weekly chart of BSE sensex too then the markets have risen from the low of 8047 to the high of 15599 in 14 weeks again. Now that is quite a similarity in both the markets. There is a gap in the weekly chart as far as the sensex is concerned so I do not rule out the possibility of sensex reaching somewhere close to 12300. The fall that we are experiencing now is just a correction. Lots of people have missed the opportunity to buy at the lowest levels as there was constant fear in the markets that the rise may not sustain. New investments will start coming in soon in the recent correction and it is also very much visible with the mutual funds coming out with new issues in the markets. The SEBI has even scrapped the entry load fees on mutual fund investment which is also going to help the investor save some investment cost. I do not know if you had observed it or not the brokerage house have again started off with their advertisement on the TV which was not visible during the market fall period. Don’t be surprised that in the near future American economy comes out with interest rates hike. job layoffs have come down and may companies have started hiring back new staff, though they have not being making the same mistake of over-staffing but they are filling up the spaces now. As the demand starts picking up in the market the base metal demand will also see a stable rise. There won’t be any mad rush by china anymore for metals as they have over stocked their quota of metals. So do not expect china to come in the market now and buy as they won’t make the mistake of buying at rising prices. Then the concept of cheap Chinese goods does not hold strong. I would suggest that you need to keep an eye on base metals prices now, as this will be the last stage that you will be seeing a correction in the prices. They will be stabilized in a month or so and then they will start rising.