Another Derivative Expiry !!!
Some pointers :
- A raise of 25 basis points in the interest rates was expected by the market. But why did the markets sell off on last Friday ?
- RBI has almost abdicated it's responsibility to control inflation by it's act of raising the expected inflation rate to 7 % and doing almost nothing about it except for the prescription of some mild medicine.
- RBI has dented it's own reputation as an inflation fighter. The central bank has even confirmed that the current inflation cycle will be a long one requiring further hikes down the road.
- Here is some proof for the ineffectiveness of the rate hikes and of the lethargy of the banking system. The YTM ( yield to maturity ) of 10 year Government securities was quoting at 8.15 to 8.20 % last Friday. Deposit and loan rates of most banks are not much higher than the YTM. Normally, it should be much higher than the YTM of gilts.
- Need further proof ? Bankers are crying foul about the lack of deposit growth. Means they are pricing it very low ! And loans are flying off the shelves. Same meaning ! Borrowers are getting the loans dirt cheap !
- Inflation not only robs the ordinary people but even the corporates.
- An example : Hindustan Unilever declared it's results on last Friday and the stock sold off by 5 %. ( Please see the chart below. )
- Hindustan Unilever is a cash rich company which is just struggling to pass off the high raw material prices.
- But what happens to other corporates who have heavy borrowings ?
- They will be negatively affected on more fronts like raw materials, wages, interest rates etc.
- In short, corporate profitability growth will suffer.
- It seems Reliance stock at a three month low might decide the immediate direction of the market. If the stock breaks the 950 support, it may take down the indices lower just because of it's 9.58 % weigtage in the Nifty index. ( Please see that chart below ).
Hindustan Unilever ( Inflation Victim ) - Daily Chart
Hindustan Unilever has broken it's 100 DMA support at around the 298 levels. It has support from the 200 DMA at around the 275 levels. The lower supports are at 250 and 225 levels.
