Global Economic Crises: Is Indian Economy in good health!

There is panic all around, markets world over are nervous. How about the health of the Indian Economy? Fortunately, the ground reality does not suggest any major danger signals for the health of the Indian economy. As per the latest data the growth in bank deposits and credit has been to the tune of 23% and 26% respectively. The credit deposit ratio is over 73%. However, the pinch of RBI's tight monetary policy was being felt on the liquidity position of the banks which has been duly addressed by RBI through reduction of CRR by 50 basis points.

Inflation is showing signs of cooling off: Crude oil continues to drift below the $90/ barrel mark, prices of essential commodities have stabilised- open market price of wheat is now below the minimum support price announced by the Govt., commodity prices have come down to reasonable levels. Although reduction in CRR has been termed as a temporary repreive, it signals the end of the high interest regime and the interest rate cycle seems to have peeked. All these factors auger well for the Indian economy. A temporary spot of bother, however, is the rapidly depreciating rupee. Once a trend reversal is evident in the price of rupee, foreign investors will return to India. Even a GDP growth of 7-7.5% for the Economy for FY09 should be considered excellent in the backdrop of global meltdown.

What about the Equity markets? The all round panic situation suggests that the markets have bottomed out. The bear phase that started in January 2008 is expected to last for about 18 months. We are midway through that period currently. While the first phase saw forming of lower tops and bottoms, we will soon see formation of higher tops and bottoms. While the policy in the first leg of the bear phase is 'Sell on every rise', the policy in the second leg of the bear phase is 'Buy on every decline'. It is time to accumulate blue chips for building a long term portfolio.