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Bull market is likely to return as monsoon is progressing well Ever since the US Federal Reserve chief Ben Bernanke said about a month ago that the...

Bull market is likely to return as monsoon is progressing well TalakshiEver since the US Federal Reserve chief Ben Bernanke said about a month ago that the QE3 (quantitative easing 3) would gradually be withdrawn as the US economy is already out of the woods and on a recovery path, the US dollar is becoming stronger against most of the currencies in the world including the Indian rupee. The strengthening greenback, or rather falling rupee, had created havoc in the Indian stock markets last week. The news of the rupee falling below Rs 57 a dollar, even though momentarily, caused a sell-off in the Indian stock markets in the last hour of trading on Friday last week. The markets which had been ruling weak right from the very first day of trading on Monday and losing ground every successive day fell head-long with most of the traded scrips being marked down significantly. The BSE Sensex, which had been jolted by 455 points in previous week's last trading day, was rendered poorer by 332 points e last week mainly on account of rupee depreciation. Additionally, some companies churned out poor quarterly results causing concern among investors. However, the fall in the Indian stock markets was not an isolated issue this week. Most other leading stock exchanges in the world including those in the US and Japan recorded significant downfall. The Dow Jones industrial average which had recently scaled above 15,500 plunged below 15,000 mark last week. The Japanese Nikkei index lost nearly 2,000 points from its recently gained peak. Other Asian and European stock markets also followed the suit in the wake of upheaval in global currency markets. Back home, weak rupee aside, widening current account deficit (CAD) and signals from the Reserve Bank Governor D Subbarao that there might be no interest rate cut in the ensuing credit policy review had also taken a toll on the stock markets. Besides, the concerns expressed by Finance Minister, P Chidambaram, over the jump in gold imports in the last two months also left an impact on the bourses. The weakened rupee means costs of imported goods will go up even if their prices remain the same or even go down in the foreign countries. India being a net importer of raw materials for industrial use and also a major importer of crude oil, will have to shell out more money from now as the value of the rupee has diminished. The increase of the cost of the imported crude oil and other raw materials will enhance the burden of subsidy on the Indian exchequer and the government will have only two options to cope up with this issue- either hike the taxes or print currency notes. However, neither of the two would augur well with the struggling Indian economy. With rupee depreciation mauling the markets, market men have either neglected or ignored a positive trend in the form of timely progress of the monsoon. As per the latest reports, the monsoon is progressing very well and would spread over the entire country by July 15. The RBI chief D Subbarao is also likely to oblige the markets with a small cut in both the prime lending rate and also the CRR (cash reserve ratio) as a part of an ongoing policy and thereby make the stock markets fraternity happy. The Indian investors should be rest assured of the return of the bull market as with a good monsoon, most of the trivial and non-trivial woes would end as predicted by most of the leading investment bankers and stock market analysts. The government is also taking steps to curb excessive imports of gold which would cause the rupee to stabilise and later on firm up. A leading foreign investment banker predicted that the Sensex would reach 23,000 mark by December this year, while another investment banker estimated that investment cycle would pick up pace during the current fiscal despite the ensuing General Elections. Therefore, investors need not sell under the impact of the current weakness in the rupee as well as the stock markets and rather mop up stocks of companies whose future appears to be promising.
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