Sunday, December 22, 2013

Digesting the Bitter Taper Pill !

Finally Fed Chairman Ben Bernanke along with his committee members decided to slow down their monthly $85 billion asset purchase programme by $10 billion to $75 billion. More than the quantum of the reduction it was the faith that Fed Chief highlighted in the economy's recovery. Lowering unemployment rate, growth in Gross Domestic Product and expected inflationary effects has been the reason behind the act.

When in May Mr. Bernanke hinted about lower purchases there was a palpable negative impact on the emerging economies. Indices plummeted across the region and governments started blaming the Fed for  harsh landing. Sudden sense of a pause in the flow of money in emerging economies and its impact shook the fundamentals of the region. And it seemed as if Fed was manoeuvring their economy and were not prepared for any kind of interruption.

But in past 6 months emerging markets understood and realized that the economic fundamentals of the country should showcase its solidarity and be prepared for the worse as far as hot/easy money is concerned.
And when finally Fed took its stand and started tapering, although in a justifiable manner, the emerging markets acted buoyantly. They were actually prepared.

In India though initially markets reacted negatively and plummeted but lately bulls overshadowed the bears. More than the external factor like Tapering it was domestic inflation data, political climate of the country and the corporate sector's performance that took the driver's seat and guided the markets. Domestic issues had more impact than the International external factors. And I feel in the next six months, the domestic factors would pave way for the economy than the extraneous ones, namely:

  • Corporate Sector's third quarter earning
  • General elections and the sentiments around it would guide the economy
  • Desperate attempts by the ruling party to revive the economy (keeping CAD in control), and
  • Central Bank's actions regarding the Financial year end Monetary Policy stance and Bank license issuances.
So keep gazing the domestic factors appropriately as more than the tapering effect it would be the above mentioned domestic issues that would pave way for the economy to moving forward. Tapering effects has been tapered away and it is the domestic events that one should observe to get nick of the economy's movement.

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