Inflation crosses 11%, sensex dips
Posted on: June 20, 2008 - 9:11am
Inflation crosses 11%, sensex dips
Down Down and Down...this was the trend as the sensex crashed to a record low of 14, 571.29. A dip of 516.70 points aka 3.42% was registered as the BSE sensex crashed to the lowest levels since Augues 2007.
Inflation on the other hand took a leap as the rise in petrol and diesel prices triggered a rise in prices of all commodities.
The National Stock Exchange NSE also lost 3.48%.
Although, the market rose initially, increased selling pressure owing to the rising inflation and the pessimistic attitude of the government forced a downslide.
What does these signal? will it crash further?
Until the government manages to get 11% inflation under control, the sensex will not likely show signs of recovery. We all know the remedy for high inflation is higher interest rates. This development would not bode well for the sensex near term. Look for stock market capitulation before committing new money to average down on old ideas. In other words buy when there is "blood in the streets".
India's current state of affairs reminds me of North America circa 1980-1983. Paul Volcker was Chairman of the Federal Reserve Board (1979-1987). He was forced to substantially raise interest rates to fight out of control inflation. Let's hope India learns from America's mistakes.
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