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Indian astrologers predict a stock market crash

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Indian astrologers have been posting gloom and doom on their websites for the first time since August when they got the Chinese stock market correction right. Now they are forecasting a sell-off in Indian stocks before the end of the year.

Perhaps Indian astrologers specialize in emerging markets but there is also plenty of concern in global financial markets that, after the massive run up since the lows of March, investors will decide to cash out their profits.

Of course, skeptics will always argue that astrologers read the newspapers as much as the stars and planets.

Indian hyper-inflation

Economists point out that there is a rare conjunction of very high food price inflation and a high stock market with a massive government stimulus program and record monsoon season. To tackle inflation the government will have to raise interest rates and crash the market.

In a country which still has the world’s largest population of chronically poor people a 20 per cent surge in the wholesale food index is extremely serious. Potato prices have doubled in a year.

The Reserve Bank of India is now widely expected to tighten the money supply with an increase in the cash reserve ratio, possibly before its next review which is due on January 29th. Stock markets do not usually sit around waiting for their death bell to sound, and a rush to the exit is standard practice with doom on the horizon.

Not only the astrologers have cast their charts. Dr. Marc Faber told a press conference in Mumbai that a 20-30 per cent correction from current valuations would be normal after such a run as ‘markets don’t keep going up in a straight line’.

The question then is whether this correction will indeed by a blip on the upward march of Indian stocks, or a more fundamental challenge to this momentum. Some see recent gains as typical of the spike period in the final stages of a bull market, rather like the Gulf markets in 2005, for example.

Government-induced bubble

That would infer that the Indian economic strength of 2009 has been no more than a bubble produced by artificial government stimulus in an effort to head-off the global recession, rather than a more fundamental improvement in economic productivity and local demand.

Doubters think the same of Chinese economic growth this year: more of a triumph for smoke and mirrors accounting, bad lending practice and investment in over-capacity than a real economic miracle.

If they are right then the day of reckoning may not be far off, and Indian astrologers right again in what they see in the stars.

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Written by Peter Cooper

December 20, 2009 at 8:11 am

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