Tuesday, July 8, 2008

Out of the frying pan into the fire

If you get out of one problem, but find yourself in a worse situation, you are out of the frying pan, into the fire. (http://www.usingenglish.com/)
This applies to two different issues facing Indian Investors - the political crisis at home and rising Crude prices.
The Politics of Support & withdrawal of support.
The Four Left front parites with 60 MP's in Parliament finally withdrew from the government coalition today. Their loss was compensated when the ruling Congress party negotiated with the Samajwadi Party led by Mr Mulayam Singh and Mr Amar Singh, with 39 MP's.
It is reasonable to expect that the support will come with strings attached. There is likely to be more of horse trading, instability and measures that seem to help the public but actually help just a few select individuals. At some point the Samajwadi Party is likely to make life so miserable for the Congress party that they (Congress) will begin to think of Mr Prakash Karat & Company as benevolent angels. Then, for the nation, it is a case of "out of the frying pan into the fire."
Crude Falls after many weeks
Surely, this piece of information should be good news for crude importing countries like India. Unfortunately, not. Bloomberg leads with the heading : "Oil Falls as Economic Slowdown Concern Sparks Commodity Selling "
This is our worst nightmare come true. Crude prices falling not because of increased supplies, but because demand falls. Gold, soy and corn and aluminum declined today. Not just commodities, equities fell in Asia & Europe amidst concern that the world economy is may slow further. Now we have a scenario where India gets hurt when crude prices go up (inflation), and it gets hurt when crude prices comes down (recession).
The curse is upon me cried the Lady of Shallot
This line is from the poem "The lady of Shallot" by Tennyson.
Well, for TV viewers, the curse has come upon them in the form of the start of the Quarterly earnings season. All business channels will feaure serious looking analysts doing what they do best - analyze. Every number will be dissected till the TV viewer grabs the remote and switches to news where he sees another group of serious looking analysts - analyzing the political situation.
Here are three starting Q1 results:
Infosys: July 11
TCS: July 16
Wipro: July 18
What will the Q1 results tell us ? That the economy is grinding to a halt ? It is not. That corporate earnings are improving ? Maybe. I feel that Q1 will tell us next to nothing. It is Q2 and Q3 results which will tell us if the corporate sector is feeling the pinch of slowing demand and rising prices. This also means, Q1 is not expected to give any negative surprises. If such surprises do come, the Market may not like it.