You must be wondering what this 11 basis points refer to. Its actually the number of basis points India's Wholesale price index needs to cross the RBI's threshold mark of 10%.
The wholesale price index (WPI) jumped 9.89 % in February 2010. compared to a rise of 8.56% in January 2010. Meanwhile, the WPI for December 2009 revised upwards to 8.1% from a provisional rise of 7.31%. It could be that the WPI for Feb may also be revised upwards in the month of April and the government is just choosing to keep it below the 10% mark for the sake of comfort of capital markets.
At its January policy review, the Reserve Bank had raised its WPI inflation projection for end-March 2010 to 8.5% and it is already much above that in the month of February. Thus, I believe that it would in all probability lead to a hike in the key rates by RBI of a minimum 50bps in the April policy review of its monetary policy.
Hence, I believe the way the markets are cherishing the higher advance tax figures is not justified. One has to keep in mind that the figures with which Q4 advance tax numbers are being compared are Q4 FY09 numbers which is a period of peak recession, hence the numbers will certainly look good. So, nothing to get overwhelmed. Some of the markets experts believe that the India Inc. is set to come up with a fresh round of QIP placements and in order to make sure that the positive euphoria remains so that the issues can be done through easily, they are paying higher advance taxes.
So, idea is to remain over cautious and only invest in non rate sensitive sectors like FMCG, Agriculture, Pharma and Media.
Happy Investing...!!!
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