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Stock Market: 11 Themes for 2011

Moderation could be order of 2011; moderation in inflation, in interest rates, in crude prices and in fiscal deficits. All of these are showing an upward bias now. If either of them starts surging, it can be a cause for despair. Here's why they count...


1 US RECOVERY: If a slowdown in the US economic recovery is bad for stock markets, a quick bounce can be worse for India. For, a lot of FII money parked in emerging markets may rush out to cash in on a US boom. At the same time, it will make export-oriented businesses smile.


2 CRUDE: A spurt in crude price can throw inflation and fiscal managements out of control and trigger a recessionary cycle globally. However, higher fuel prices in India and China and measures to fight inflation may help tame crude prices. Pray, it's the second case!

 

3 INFLATION: Huge demand-supply mismatch, erratic weather conditions and a surge in consumption promise not to allow any letup in high inflation.


If a high base effect doesn't work, be prepared to live in conditions that will be only slightly better than a slowdown.


4 RUPEE MOVEMENT: Rupee at 35 to a dollar? Phew!!! Well, that's like doomsday prediction. But if the US Fed goes overboard to keep the dollar down or if its economy grows slower, FII inflows grow manifold and the euro zone crisis blows up, we will have a war at hand.


5 LIQUIDITY/INTEREST RATES: Ask the sabjiwalla to help us take the Sensex to 30,000! If prices remain high and crude gets costlier, RBI will keep its tight leash on cash, loans will cost more, consumption will get slower and capex plans will take a pause.


6 EURO ZONE WORRY: There is near unanimity around the forecast that the euro zone crisis will blow up in 2011, possibly in the second half. That will trigger risk aversion, exporters will go into a bigger sulk and stocks will go wobbly.
Let's hope Europe's firefighting works.


7 CHINESE CHECKS & GEOPOLITI CAL RISKS: Beijing's inflation fight is bound to get more serious, if not aggressive. That will cool down commodities.


But if asset bubbles burst, it will be a disaster. Meanwhile, Korean and Iranian geopolitical risks stare us in the face.


8 DEFICITS: Fiscal deficits at near 6 per cent, often threatening to turn chronic, may further delay big infrastructure spend. If crude prices play spoiler and foreign investment slows down, it may get tough. Good news is structural deficits (read subsidies) are falling.


9 DTC: 2011 will see India dress up to get wedded to the Direct Tax Code.


As taxes get aligned to new levels, consumers will hopefully have some extra money in pocket. For India Inc, lower corporate tax and MAT effect to start having some ripples this year itself.


10 INFRASTRUCTURE PUSH/ CAPEX: The smooth progress of PSU selloff promises some amount of infrastructure push this year. Also, the much-delayed capex plans should take off anytime now. But all of that is pegged to inflation, deficits and interest rates.


11 SHARE SALES: The June 2012 deadline for implementing the norm of minimum 25 per cent public float in listed companies, PSU disinvestment and pending as well as fresh IPOs promise a busy year. Provided, some monster doesn't bring the Sensex down.

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