With Fed confirming that they are not tightening the money supply, the policy makers around the world would have to continue fighting inflationary pressures through supply side and other fiscal channels. Fed will buy another $250bn worth of treasuries in next 2 months and EM should get their share of funds inflows. Over march and apr, India received about $3bn of inflows. Fed is going to re-invest the maturing securities means they are not going to pull back money from the system. From current inflation of 2.68%, the Fed has projected an inflation having central tendency around 1.7-2% over a medium term. So the message is not to sacrifice growth and pray that somehow inflation subsides through lower commodities prices and some political stability in oil producing nations. This would be confirmed if we see some high-intensity back-channel US diplomacy over next few weeks.
Indian market has already discounted higher oil price and a possible 25bps rate hike by RBI in its next review. The reported earnings have not been blockbuster and operating margin pressure continues although good thing is that sales growth has been by and large upwards of 25% .
So there does not seem to be any strong negative news round the block. We should see now strong buying in stocks of companies that have more internal reserves and is less dependent on the commodities sector. I expect a short-term bullish trend led by few selective counters especially in agro, consumption, pharma and banking sector.
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