Why hasn't the stock market responded to a Fed rate cut

The markets are continuing their downslide from the recent top of 5383 to sub 5100 levels. in the intermittent time US Fed has cut its rates twice by 75 and 50 basis points respectively. The Fed discount rate has reduced to 3% overall. The move by Fed is largely seen as an act to prevent US from falling into recession and to boost consumer spending across the board. This magnitude of cuts would have usually been seen as a double delight for emerging markets given the excess liquidity flows that would flow into these geographies. However post sub prime mess with increasing defaults by consumers/borrowers, foreclosures and bankruptcy claims of various hedge funds and write offs by investment banks on Asset backed securities, the crisis situation has become an albatross around the neck of the US economy. The unanticipated 75 basis points cut announced last week instead of bringing cheers has taken the world by surprise and struck a cautionary note . Analysts across the globe have started forecasting a large and looming crisis for global markets that would result from a recession in the US economy. FII's all across the emerging markets who have made stellar returns over the last 4-5 years of Bull run have started booking profits even on their long term investments. They are only offsetting the losses made from the sub prime fiasco that was orchestrated by them. In this kind of scenario, money isnt flowing into countries like India and China as most investors prefer to sit on cash. As we all know, liquidity is the mother's milk for all bull markets and in its absence, bears definitely have an upper hand atleast for the moment.
As a note of caution for the FED, they would be prudent enough to know that it was bad credit under the Greenspan regime conjugated with unscrupulous lending practices to consumers with lax credit standards, that led to this collapse. Now by cutting the lending rates, more bad money is going to flow into and out of the US economy. As more bad money flows behind existing bad money, problems only get compounded. Wouldnt it have been more prudent to take the hit, take the losses, suffer write offs, get into recession,face the problems and after having weeded out the excesses in the economy, a prudent call to revive the economy should have been deliberated upon.

Impact of Fed rate cuts:
* Every time the fed rate is cut, the dollar is going to crash even further and as a result crude oil
will shoot up to unprecedented levels. As CLSA has pointed out crude oil at $200 doesnt seem
far away if Fed keeps cutting rates frequently.
* Gold prices, already at life time highs, will inch up even further from current levels as
whenever the OPEC countries feel rich and smell of surplus money, the same flows into gold.
* For Emerging markets like India that were trading at reasonable valuation 4 months ago at
15000-16000 valuations (Nifty 4600 approx), it was the first Fed rate cut by 50 basis points
in October'07 that led to the flow of "hot and speculative" money into India which propelled
the Sensex to the overstreched zone of 21000. Its this excess money that has flown out of the
market within a couple of days on Black Monday and Terrible Tuesday of Jan 21 and 22. Fine
the excesses have been removed or washed away from the bourses but not before sucking
out a lot of blood on Dalal street. Investor's wealth estimated at 7,00,000 crore have been
completely wiped out and traders with positions in 'F n O' (Futures and Options) are still
smarting from their losses. It will take atleast six months or more than a considerable amount
of time for them to recover and get back to their trading terminals. Its more of an emotional
shock rather than monetary losses. Over the past two weeks, the stress levels of traders have
heightened to unexampled levels, so much so that a famous lake in Gujarat has been sealed for
two months to prevent investor suicides.

Its indeed quite understandable as to how difficult it is to be a Fed governor. But Ben Bernanke is purely playing to the gallery at the moment without realising the impact of his actions on the global financial stability.

Financial Services looks attractive

Yes financial services, the sector on which most analysts are extremely bullish on going forward. The reason being, the next trillion dollar opportunity for the Indian economy lies over the next five years from 2008-2012. It was only last year that our GDP crossed $1 billion and with the latter growing at 8.5% p.a on an average, we are the second fastest growing economy in the world only behind China which has been consistently growing at 10% p.a over the last decade albeit the veracity of their claims.

Mumbai is all set to become an International Financial centre (IFC) by 2015 going by the promise held out by Percy Mistry's vision document to make Mumbai an IFC. Once the proposal does come into effect, the amount of financial transactions that would be handled out of India would be inconceivable. The benefits of Mumbai becoming an IFC would also flow in the form on secondary outsourcing and back end work to other ancillary cities like Pune, Chennai, Hyderabad and Bangalore where a lot of talent pool is already available in abundance.

The scope for financial intermediation in our country is pretty high with the huge investible resources waiting to be ploughed in to the market and the demographic dividend expected to last atleast for the next few decades. The savings rate in India is less than 32 % of our GDP, out of which the household savings rate is below 16%. The Housing Mortgage to GDP ratio is also below 6%. These two are enough indicators that go a long way to prove the tremendous scope that exists for financial intermediation in our country.

A large and sizeable pool of financial planners have emerged in our country to address the needs of the" asset and wealth management" industry. India is beginning to produce crorepatis and millionares by the passing of each day. We are transforming oursleves from a tag of " knowledge creators" to "wealth creators" for the world at large. We have reached/seen such a metamorphic rise in the evolvement of corporate India that the French president today is making "humble requests" to the CII to address unemployment problems in France. With so many HNIs (High Net Worth Individuals) taking the world by storm, the wealth accumulated by them needs to be managed and managed well with profitability being the sole objective.

Mutual funds have seen their assets under management (AUM) swell by over 637000 crore as at Dec 07. This indicates the confidence of the average retail investor in the growth prospects of our Indian economy. Every month we find 4 to 5 new fund offers raking in the coffers on a regular basis. Now government has relaxed provisions for PPF and pension funds of public sector undertakings by allowing them to invest in the stock markets lured by the attractiveness of returns therein.

Infrastructure in our country is still facing huge bottlenecks in our country and is crying out for immediate reforms. As we all know, things cant happen overnight. The gestation period to solve problems in infrastructure requires foresight and political will. Given the constraints in coalition politics, even a government with all the requisite potential and wherewithal will obviously flatter to deceive as the UPA has done so far. But still, I for one firmly believe and reiterate that in a democracy like India, problems will find its own solutions and infrastructure is one such element which will address itself. Now coming back to the point of financial intermediation, herein lies a huge opportunity in infrastructure with the amount of investments expected to be flighted in both through FDI and FII routes not to forget our domestic PPP's (public private partnerships). Every sort of an Investment will find its source to either debt or equity. These can only be the two major means to raise resources and that requires financial intermediation.

The opportunities that lie ahead in the form of capital account convertibility and opening up of the banking and insurance sectors will be deliberated upon separately by the author at an appropriate time

Till then to conclude ...our financial services sector looks robust in the medium to long term even without any seminal signs of second generation reforms taking off.

Marketing Research : Inspired to write a few lines on the subject cos of the "ONE"

Marketing research is a systematic and objective research for analysis of information that would be useful to address any given problem in marketing. Iam not an expert in this field but here's what i have gathered from well known scholars and connoiseurs of "marketing research"

It involves the following:
* Identifying the target population/ market segment for a particular product
* Identification of customer choices and keeping a tab on their changing tastes and fashions
* Identifying "White spaces and opportunities" in any market and advising clients on product
segmentation
* Assessing the need for new or improved versions of a product based on customer feedback
* Benchmarking a product against competitors and advising on strategy to counter competition
* Identification of appropriate pricing points for a product in different market segments across
geographical diversities and location of sale/ distribution outlets for a company

and much more....(the list is exhaustive) (Maybe AC nielsen or IMRB experts can add on more to this list)

This function of "Marketing research" can be condensed to mean providing the right information, at the right time, to the right person and thereby becomes a vital cog in the decision making process of any top management. Its a highly useful tool that's designed based on scientific sampling methods to elicit rational responses/solutions to specific problems of marketing.

P.S : I never knew that so much information can be condensed and conveyed through bar diagrams, pie charts and tables until i saw their reports ...guys keep up the good work!!