The markets today managed to hang on by the skin of their teeth. The pattern of the day provided a good hint of the correction possibilities that lie ahead. In the days to come, investors should keep some cash on hand as a larger correction is expected to set in.
The profit booking that crept in from the top was on expected lines. Despite the fall, the market still managed to close in the green. However, the blueprint of today's session could be seen adopted and a sharp correction in coming sessions cannot be ruled out as the market has already run ahead of its fundamentals.
The rally which started with the reports of Unlock 1.0, has now extended into an overstretched celebration. Other than fundamentals, the current rally is also due to favourable FII flow. Overseas funds have bought in a cash infusion worth Rs 23,000 crore in the past seven days which is higher than the South Korea, Taiwan and Japan stock markets.
With the upward movement that we have seen off-late, the Indian market demands careful stock-picking for now. Investors are advised to preserve cash for the times when tides are down.
Demand disruption takes inflation pressure off RBI's head for now
The fact that the economy was slowing down even before Covid-19 struck is well documented. Indian economists are still scratching their heads on how to plot demand rejuvenation. RBI's Monetary Policy Committee (MPC) members are also grappling with the same issue.
Most of the MPC members seem to believe that consumer demand is going to be slow in times to come. Despite the restart in the economy, a consumer’s life is still limping back to normalcy and he/she is likely to cut down on discretionary spending.
Key takeaways:
Industries are getting back to work while demand is expected to remain subdued for times to come. This higher supply-lower demand equilibrium could keep the commodity prices down, resulting in lower inflationary pressure.
However, for that to happen, supply needs to pick up in the market. In MPC member Pami Dua's words, weakening aggregate demand is expected to soften inflation but if supply disruptions continue, it may impact inflation adversely.
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