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Tuesday, June 19, 2012

Growth or Austerity?

The IMF is trying to enforce an idea that is going out of fashion rapidly.....AUSTERITY!The current generation brought up on an excess of consumption cannot grasp it and there is also no denying the pain of joblessness,hunger and the helplessness it engenders in all and sundry as seen on the streets of Athens and other cities in Greece and Spain.

I belong to the Nouriel Roubini school of thought that says that GROWTH is the way forward.Create investments,create jobs,create consumption.That will take care of the violence on the streets,provide an alternative to the youth and create a cycle of fulfillment in the citizens.In the Indian context I may add that its not a secret that inflation in India is more a result of supply side imparity than anything else.Gone are the days of cyclical inflation that rose and subsided with the monsoon.

I do not think that the average joe is too worried about Fitch downgrades or S&P warnings....its the cost of food,transport and business sales that shows whether the country is in trouble.By that yardstick the Indian is in a lot of pain.

A government that supposedly looksout more for the 'common man' on the streets has not had the time.The ambition of the current Finance Minister to be a Prime Minister or hold high office is well known and now that he has got his wish we hope that the focus of the Government will shift back to the economic front and rise above personal ambitions?

The gut feeling though says that the political circus will continue,even after 60 years of independence our politicians will show immaturity and the country will keep slipping into the mire.What is worth mentioning is that it needs little initiative to turn around the environment and with base commodity prices slipping it will help the capital goods sector bring down prices and have a macro affect on core inflation.The continued prudence at the private sector and most PSU banks will also help,as the average CAR of Indian banks is 8%+
For investors,infrastructure stocks and banking stocks have seen positive valuation emerge and look a good bet.After the short sellers had their funlast week the Bulls seem poised to keep the nifty above 5000 levels for a week or so.Grexit may still happen.Spain and Italy may slip further as seen with the rising cost of Spanish debt sales and which Euro nation is next on the list?No guesses...