Encouraging GDP Figures

Better than expected GDP numbers helped lift sentiment on our bourses today. Manufacturing and services sectors turned in fabulous growth numbers. For the past several weeks market has made several attempts to cross the 5100 Nifty hurdle and move on to a higher trading range. Will the significantly better economic growth data be the trigger market is looking for?  While there is a distinct possibility of this, however one will do well to keep some significant facts in mind that have helped generate such amazing growth statistics. Over the last one year our government in line with the international trend has doled out various fiscal packages that have lifted the spending power of Indian Consumers. Hike in government salaries, farm loan waiver and increased procurement prices of agricultural produce are some of the measures taken over the last one year to keep the economy afloat. Higher liquidity in the system coupled with anticipated lower kharif production has resulted in rising inflation concerns. In particular the food prices have started soaring rapidly, something which has the potential to reduce consumer surplus in the coming months. Also with regard to equity markets one should not overlook the impact of overseas sentiments on our bourses. The near panic like situation last Friday in the aftermath of the Dubai Crisis suggests that international sentiment and risk appetite are still very fickle. More than the fundamental strength it is this return of risk appetite amongst international investors that is responsible for the phenomenal return generated by our bourses this year. Subsequent recovery in global indices today has allayed the fears of any significant erosion in the global inflow for emerging market equities for the time being. However things could turn for the worse anytime and one needs to be cautious at every step. The risk – reward equation needs to be reviewed constantly on your portfolio. Also though one may be tempted to conclude that the impact of the Dubai Financial Crisis is over, yet history of world’s financial crisis teaches us to be circumspect about jumping to any such conclusion so rapidly. Ramifications of the Dubai World mess are likely to be felt at various points across the world and it is too early to judge its final brunt yet.

So though a significantly higher than anticipated GDP numbers are a very positive indicator for the markets, it may not be enough to pull them up to a new stratosphere as yet.