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Market rally will not sustain

Posted by fairval on August 14, 2008

Since the UPA government winning to vote of confidence, the Indian markets have rallied by over 1500 points or around 12-13%. This has led some section of the market to believe that worst may be over, and we could be looking at new highs by early next year.

That seems to be a lot of optimism. There are too negatives at the moment –
– IIP at 3-5%. There is already a very strong slowdown.
– Inflation has probably peaked, but the govt will need to come close to 5% or so by Dec. There isnt too much time left. So expect more drastic action.
– Interest rates are still climbing – EMI per lakh has risen from around Rs 850 a year ago to Rs 1250 or so. No way houses are going to sell at the same rate. So too for consumer durables
– Subsidies. Fiscal situation is very bad.

Cant see how we are fit for market PE for 20x one year forward.


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