Inflation and stock market sentiment usually have an inverse relationship. The scary inflation numbers will definitely have the markets worried.
MUMBAI: Inflation and stock market sentiment usually have an inverse relationship. The scary inflation numbers released on Friday - showing that it had risen to 6.46% in the week ended March 3, 2007, from 6.10% in the previous week - will definitely have the markets worried.
In fact, it already has, with the Sensex dipping after the announcement. For the record, the index closed the day down 113.45 points at 12,430.40. But fund managers believe that inflation is clearly on its way down and is not as much a concern as interest rates.
AK Sridhar, chief investment officer of UTI Mutual Fund, says he does not expect the stock markets to react much to the inflation numbers announced on Friday, but expects it to anyway remain volatile for a fairly long period.
“It’s a market where expectations and phobia are mixed, and there’s confused participation from players. This will mean that volatility will continue,” said Sridhar, adding that he needs two confirmations of growth if the markets are to rise again. “That would be the Q4 results for this financial year and the first quarter results for the next,” he said.
Adds Sandesh Kirkire, chief executive officer of Kotak Mutual Fund, “The market fell after the numbers came out, which shows that there is some degree of concern on account of inflation. But market direction will be determined more by the RBI’s decision on liquidity, when it reviews monetary policy towards the end of April.”
Even if interest rates rise, Sridhar does not expect corporate growth to slow down. “Corporate borrowings have not gone up and corporates have enough cash balances to fund expansion,” said Sridhar.
“My view is that inflation may continue to rise for the next two weeks, but from April onwards, I think it’s going to taper off,” he added. Kirkire concurs, saying that inflation will be on its way down four weeks hence, purely on a base effect basis.
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