Readings: Inflation in India, PowerShares India Portfolio (PIN), Brokerage shares
- Morgan Stanley: Inflation Heading Up Again: How Will Policymakers Respond?
If the current pace of increase in global commodity prices continues over the next 6-8 weeks, headline inflation (WPI) will again cross the RBI’s near-comfort zone of 5%. The key concern arises from potential rises in food, oil and global commodities ex-oil. Over the past eight weeks, the CRB Foodstuff Index has increased by 19.9%, while crude oil (WTI) and the CRB Commodities Index have risen by 6.9% and 11.8%, respectively.
We expect the government to take some measures to influence food and other global commodity prices by way of further reduction of indirect taxes. In the near term, we believe that the government will prevent another round of oil price hikes even if oil prices rise further.
The RBI will choose to allow appreciation of the rupee only if commodity prices shoot up another 10-15% from the current level.
- Index Universe: PowerShares “PINs” Down Indian Market
The PowerShares India Portfolio is set to start trading today (5-March-2008) on the NYSE Arca exchange under the symbol PIN. It tracks the Indus India Index of 50 companies selected from a universe that includes the stocks traded on the National Stock Exchange and the Bombay Stock Exchange; the underlying index has a proprietary methodology that takes into account foreign investment restrictions for each component company.
. . . investors in exchange-traded products had to get exposure through emerging markets ETFs tracking multiple countries or through the iPath MSCI India ETN (NYSE Arca: INP), which has been experiencing significant tracking error in the wake of new restrictions on foreign investment. Both new India ETFs take into account those restrictions.
- Hindu Business Line: Brokerage stocks fall by 50% since January
Share price of listed broking firms and financial services companies have suffered around 50% erosion from their 52-week high touched at the beginning of 2008.
. . . brokerages have been at the receiving end on account of the negatives in the Budget such as 50 per cent rise in short-term capital gains tax, introduction of commodity transaction tax (CTT) and the Securities Transaction Tax (STT) being set-off against income-tax will now become a part of the business expenditure.
Note that most of the drop occurred prior to the budget - the rich multiples on these stocks became highly questionable in view of the sharp drop in trading volumes post the January crash. Everyone’s betting on growth - and this is what happens when growth doesn’t show up!
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