Low inflation and
interest rate are the right time to invest, when the cost is low and as the
firms would invest that could increase demand and price and expectations, but
high inflation and price are time to increase supply… if everybody does the
same that could help stabilise prices and interest rate and expectations...
Nonetheless, lower
prices and interest rate expectations could reinforce lower prices and interest
rate and expectations... Lower price and interest rate expectations could delay
demand and spending and increase supply further lowering price/interest rate
and expectations, but higher price and interest rate expectations would delay
supply and increase demand further increasing prices/interest rate and
expectations...
The market has still
space to climb further as it is lower than the past peak... Stimulative
commentary from FM could further increase the investment in the stocks...
Correction expectations could be self fulfilling because people would hold
buying which could increase offer/supply... Lower price expectations increase
offer or supply of stocks which further lower prices...
Too high NPAs have
resulted in limited transmission of rate cuts by the RBI by the commercial
banks... Though government has recapitlised banks and resolved NPAs though IBC
we still have considerable NPAs due to demand slowdown too... If the RBI and
Govt use $ 50 billion or Rs 4 Lakh Crores from foreign exchange reserves to
recapitalise banks that would help transmission by commercial banks...
Selling $s could
increase expectations of higher $ demand by the country in the future which
could be avoided by communication to deter too much speculation on dollar
demand and price expectations... A strong rupee and lower interest rate and higher
investment and employment and productivity and lower inflation could increase
consumption and investment demand and growth expectations...
Raising foreign money
through rupee denominated bonds and investment in infra could create ample jobs
for its large unskilled workforce which could sooth the bond market... A strong
rupee would increase foreign capital inflows... lower borrowing cost would
increase demand supply prices and growth...
Lower inflation and
real interest rate expectations mean people could hold spending to reach bottom
to increase demand and spending... In INDIA inflation expectations has picked
up from the bottom after demonetisation and near the rate cut cycle end could further
increase demand and inflation expectations...
Nobody can exactly tell
the bottom of real interest rates... But, INDIA has almost reached to the rate
cut cycle end which would be cheapest to increase demand and spending which
increases price and growth expectations...
Depreciation in the
rupee and hardening of bond yields or lower bond prices show that expectations
of the two markets are different... Foreign exchange market expects higher
money supply demand and inflation and lower exchange rate while the bond
markets expects lower money supply and higher bond yields or lower bonds
prices...
Expectations affect
current prices and growth and the market continuously corrects current and
future demand and price and expectations... Many times expectations are already
factored in the current price if everybody is thinking or expecting the same,
but may correct due to risk or uncertainty or change in expectations, too...
The Corporate Tax Cut
must be passed on to the consumers to increase real wages and incomes and
demand... Similarly rate cuts must also be passed on to the borrowers to
increase demand... Likewise GST too must again be passed to consumers to
increase demand... These all together could be a big boost to private
consumption and private investment too...
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