morning thoughts...
The markets continued its journey upwards and is likely to follow the same pattern in the coming sessions.
Technically the markets are still up and must test 7925 in coming sessions.
Let us take a view on inflation and review the coming months ,agri products are different from other commodities, like metals, in two important ways.
Firstly, they are consumed quickly and cannot be stored for long periods. Secondly, demand keeps growing at a steady pace with the growth in population. Thus, food prices are vulnerable to spikes whenever there is a disruption in supply. This is why the monsoons and hoarding are always blamed whenever there is a sharp rise in food prices. But this is not the entire story. Hoarders can have a limited impact on prices, for a few months at most and their influence varies across regions and different types of agri commodities. The monsoons will cause a rise in prices only when it is deficient in any particular year. So what explains the continuous rise in prices year after year?
Many people have blamed NREGA. The employment guarantee scheme has been much criticised for driving up rural wages and thereby causing food inflation.
However, the RBI governor, Raghuram Rajan, may have hinted at the real cause of food inflation. Rajan recently defended NREGA. He stated that honest studies have shown its effect on rural wages was just about 10%. The remaining 90% can be attributed to factors like higher Minimum Support Prices (MSP), the shift of labor to the construction sector and the gradual withdrawal of women from agricultural labour. We believe that the RBI governor has hit the nail on the head. After all, rural folk would not have spent the higher income they received from NREGA entirely on food.
Thus the real cause of food inflation in India must be due to factors like MSPs for various crops. The government sets minimum support price (MSP) for various products every season. State agri agencies or the Food Corporation of India (FCI) then purchases the agri produce from farmers at this price. The idea behind the MSP is to give the farmer an idea of how much he should expect to earn when he sells his produce. In reality, this is not an economic issue. MSPs have been misused by politicians for decades. MSPs have been increased for political reasons without any consideration about the consequences. This has led to the present situation where no party will dare reduce MSPs for fear of a backlash from rural voters. Does this mean that high food prices are here to stay? If so, then the RBI may not reduce interest rates anytime soon. This could have serious implications for the markets.
We will not like to be so pessimistic. Food inflation can be tackled by prudent policies. The government will have to allow farmers to sell their produce directly to retailers by cutting out the middlemen. In this regard, the APMC Act will need further amendments. A nation-wide cold storage chain will help to transport produce across the country with minimum losses. Also, bringing the entire arable land in the country under irrigation will rid the agricultural sector's dependence on the monsoons. If these steps are taken, they will go a long way to make the whole idea of MSPs redundant. In such a situation, food prices will be driven by real demand and supply factors. It would result in fall in food inflation. This will give enough room to the RBI to reduce interest rates, thereby giving a boost to the economy.
Coming to the commodity markets bullions are likely to trade volatile with a small bounce from lower levels , whereas energy and base metals looks positive
Tuesdays wealth creators
Buy Double bumper Hpcl 460 ca , Bpcl 660 ca
Buy Nifty , bank nifty
Buy bhel , welspun corp
Buy Gold , silver , crude , copper
Yesterday's wealth creators
WHIRLPOOL INDIA HIT UC - ROSE 55 RS
BIOCON ROSE 15 RS , VOLTAS ROSE 6%
HPCL 400 CA TRIPLED , RANBAXY 600 CA ROSE 5 RS, ICICI 1500 CA ROSE 10 RS
Double bumper jackpot maruti 2600 ca and tata motors 440 ca triples
The markets continued its journey upwards and is likely to follow the same pattern in the coming sessions.
Technically the markets are still up and must test 7925 in coming sessions.
Let us take a view on inflation and review the coming months ,agri products are different from other commodities, like metals, in two important ways.
Firstly, they are consumed quickly and cannot be stored for long periods. Secondly, demand keeps growing at a steady pace with the growth in population. Thus, food prices are vulnerable to spikes whenever there is a disruption in supply. This is why the monsoons and hoarding are always blamed whenever there is a sharp rise in food prices. But this is not the entire story. Hoarders can have a limited impact on prices, for a few months at most and their influence varies across regions and different types of agri commodities. The monsoons will cause a rise in prices only when it is deficient in any particular year. So what explains the continuous rise in prices year after year?
Many people have blamed NREGA. The employment guarantee scheme has been much criticised for driving up rural wages and thereby causing food inflation.
However, the RBI governor, Raghuram Rajan, may have hinted at the real cause of food inflation. Rajan recently defended NREGA. He stated that honest studies have shown its effect on rural wages was just about 10%. The remaining 90% can be attributed to factors like higher Minimum Support Prices (MSP), the shift of labor to the construction sector and the gradual withdrawal of women from agricultural labour. We believe that the RBI governor has hit the nail on the head. After all, rural folk would not have spent the higher income they received from NREGA entirely on food.
Thus the real cause of food inflation in India must be due to factors like MSPs for various crops. The government sets minimum support price (MSP) for various products every season. State agri agencies or the Food Corporation of India (FCI) then purchases the agri produce from farmers at this price. The idea behind the MSP is to give the farmer an idea of how much he should expect to earn when he sells his produce. In reality, this is not an economic issue. MSPs have been misused by politicians for decades. MSPs have been increased for political reasons without any consideration about the consequences. This has led to the present situation where no party will dare reduce MSPs for fear of a backlash from rural voters. Does this mean that high food prices are here to stay? If so, then the RBI may not reduce interest rates anytime soon. This could have serious implications for the markets.
We will not like to be so pessimistic. Food inflation can be tackled by prudent policies. The government will have to allow farmers to sell their produce directly to retailers by cutting out the middlemen. In this regard, the APMC Act will need further amendments. A nation-wide cold storage chain will help to transport produce across the country with minimum losses. Also, bringing the entire arable land in the country under irrigation will rid the agricultural sector's dependence on the monsoons. If these steps are taken, they will go a long way to make the whole idea of MSPs redundant. In such a situation, food prices will be driven by real demand and supply factors. It would result in fall in food inflation. This will give enough room to the RBI to reduce interest rates, thereby giving a boost to the economy.
Coming to the commodity markets bullions are likely to trade volatile with a small bounce from lower levels , whereas energy and base metals looks positive
Tuesdays wealth creators
Buy Double bumper Hpcl 460 ca , Bpcl 660 ca
Buy Nifty , bank nifty
Buy bhel , welspun corp
Buy Gold , silver , crude , copper
Yesterday's wealth creators
WHIRLPOOL INDIA HIT UC - ROSE 55 RS
BIOCON ROSE 15 RS , VOLTAS ROSE 6%
HPCL 400 CA TRIPLED , RANBAXY 600 CA ROSE 5 RS, ICICI 1500 CA ROSE 10 RS
Double bumper jackpot maruti 2600 ca and tata motors 440 ca triples
