Indian Inflation
Research for Online Investors

by John Dalt

1/13/11

Every morning I check the world’s markets when preparing the SwingTrader alert for our subscribers.  We are looking for confirmation of the trend from market close in the U.S. yesterday, or a change in the direction for traders.  What has happened overnight that we need to be aware of?

The last two weeks have been stable for U.S. markets as we digested new money coming into the market. We have worked through some news shocks (eurozone credit) but are now into earnings season and all seems to be going well.

One of the things I have noticed is the India Bombay 30 Sensex Index (BSE) has been on a free fall since the first of the year.  The index has reversed this morning in electronic trading to break the cycle.  When one index defies the others consistently, it makes me wonder, ‘what the heck is going on there?’

My first thought is political.  India shares a border with Pakistan.  The news out of Pakistan has deteriorated recently.  The war in Afghanistan seems to move back and forth over their common border with increasing frequency.  The Pakistan military and police are tolerant of, or unable, to remove the Taliban from remote parts of their country.

It appears some of India’s problems start with our Federal Reserve.  Food inflation is pegged at 18% for December. According to the Siasat Daily, Prime Minister Manmohan Singh consulted with his cabinet yesterday on high food prices.  The country is getting a taste of the money we are printing.

Everyone in the U.S. sees inflation when going to the grocery store or gas station, but the ‘official’ numbers tell us inflation is not a problem.  This morning the U.S. Bureau of Labor Statistics released the Producer Price Index (PPI).  This tells us the selling price of goods and services by domestic producers.  Producer prices tell us where consumer prices are headed.  Core PPI (absent fuel and food) was steady with last month’s report at 0.2%, but the PPI with food and fuel jumped to 1.1%, over December’s reading of 0.70%.  The U.S. is experiencing inflation in food and fuel, but we don’t count those in the Core Producer or Consumer Prices.  A neat trick if you can get away with it.

India gives us another lesson in how other countries have to deal with our domestic policies.  The sluggish Indian stock market cannot be blamed entirely on the U.S.  Infosys Technologies (INFY) reported ‘disappointing’ profits.  They only rose 14.2% compared to estimates of an 18% increase in the bottom line.  The company expects growth in the present quarter of about 21%, but the chief executive said, “The weaker economic recovery in developed markets, coupled with high unemployment and risk of sovereign debt default, could impact industry growth.”  INFY added over 5,300 employees and 40 clients in the last quarter.

When a company carries a trailing price/earnings ratio of almost 30 you have to deliver growth!  Rather than playing a specific company, you may want to look at the India Fund (IFN) to track this market.  A trade may be developing if IFN finds support.  It is sitting at the 61.8% retracement of the gain from May to November.  Support also can be imputed from the tops of the rallies in August 2009, January 2010 and again in April.

To the mailbox:
I am referring a couple to your premium services.  Did you mention there is a referral fee?---paid up subscriber R.A.

John’s reply:  You are funny!  The only referral fee I have is a tendency to want to visit Texas and meet our premium subscribers.  I don’t know when, but I want to fire up the RV and visit a few major cities and meet subscribers.  I do appreciate your referral of our services...Thank you.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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