tips for market to be on 10 nov 2008

hi, friends i did not updated my blog for many days as market was not giving any clear indication technically.but last week market movement in between 9400 to 10300 has made some technical pattern which can be followed for further direction of market. mkt may head towards 11200 til nov end.china has approved the $586 billion relief package for boosting the mkt sentiments.obama may soon announce another relief package if any worst situation comes again.
psu banks sector is technically strong, one can buy pnb for tgt above 530 with limited downside to 455 level in the worst scenario.
bankbaroda has once again entered in technically strong zone with tgt to 330 with limited downside to 260 level.
remember buy the stocks mentioned above, u will not be a looser.

strategy for trading in recent market condition

hi friends,
everybody is busy in finding the exact bottom of the market,is it bottommed out or some more downside is stil left, whether we will test 10000 mark on sensex in coming days, which are safest stocks in current situation.
as per my own analysis, the worst is over now but it has broken the waist of our market, in other words say" sensex buri tarah se zakhmi ho gayi hai"actually india has not taken any big measure to support our market, no. of measures are there, that can be implemented in the worst scenario only, so if we go below 10000 then it will hardly take 2-3 trading sessions to again recoup to 11500.so dont get panic be optimistic.technically we will watch a range of 10850-12650 and if 12650 broken 13120 til november end.
whatever measures are being taken by the central banks of all the countries are sufficient, bailout package plan will also positively impact the market, but all the effects can be seen only after dec 2008, positive news will startt flowing from march 2009 and we may again see a level of 4220-4360 on nifty.
best picks in current scenario:
psu banks like bank of baroda, bank india, sbi in between 1205-1270 level, axis bank as banks will be the first to recover
punjlloyd has the potential to cross 280 within a month,one can accumulate reliance industries til 1380 level, avoid real estate sector,
educomp solution,bhel and lt.

for ur any queries post ur queries as comments of this post, it will be answered at the earliest.

tips for mkt on 23 sep 2008

in this week market will be almost flattish, nifty range will be in between 4115-4380.traders must put their leg forward with more caution.one of the safest sector to buy in current situation is PSU banks like bank india,axis bank, bankbaroda.
one can buy bankbaroda as a safe bet and keep on accumulating between 301-307 for next upmove.
buy ranbaxy on a day when it moves more than 2.5% on a single day, its currently being traded in oversold zone.
apollotyre can be bought for next tgt on 39.60-40.20, no need to put stop loss.

tips for market on 15 sep 2008

market has broken almost all key technical levels,in such a situation better to make small positions at each fall in the stocks which are technically strong and near its support level. here i am mentioning some of the stocks which can be bought in current market situation:
buy punjlloyd at each fall til 270, rare chance of its being traded below 270, accumulate this for tgt of 304-312 in next two weeks.
apollotyre can be bought til 35.60 levels for once gain tgt of 41
rolta can be bought til 310 as it has rare chance of falling below 300, for tgt above 360 til oct end.
indian bank can be bought til 115 level for tgt above 135.
all the stcks mentioned above are in uptrend, so they can be bought for new highs.

tips for market on 12 sep 2008

market has broken all the supports of our technical analyst, actually in current situation nifty has no any technicals, at each fall it finds new support, much its being traded following sometimes asian market, many a times U.S market and if not affected by all these then got affected by inflation and dollar apreciation concerns.these all suggests that investors should be more concious.
buy axis bank for one week tgt of 740 with less risk.
buy bankindia for tgt of 306-310.
buy apollotyre for tgt of 39.60-40

tips for market on 09 sep 2008

tomorrow market may open positive with 30-40 points on nifty ttracking dow jones and todays strong closing of market. we may see above 4600 on nifty this week. traders can buy banking stocks and power stocks.
buy bankindia for tgt above 306-314,strong technical chart.
buy rolta for tgt of 354-360.

tips for 04sep 2008

to morrow market may open in positive and will be almost flattish. we may see 4650 level of nifty within this month, but it will take weeks.but one must create positions in performing stocks only. better go with banking and oil stocks. lots of movement is still left in bankindia, kotak bank, and dena bank, ongc, bpcl,.
calls with exact entry will be provided during market hours.

tips for market on 02 sep 2008

todays closing above 4320 signifies a rally in near term and clears the way up to 4650 at the end of this month.todays closing has cleared atleast one dilema that we r not going below 4160 in this month, this month will see probably lots of gains in the coming weeks.banking sector may steal the show in this month with bank of india, axis bank, hdfc bank, indusind and dena bank.
buy bankindia in between 272-274 for tgt of 282-286 till thursday.
one can accumulate moserbaer till 102 for tgt of 116-120 til next friday.
go long in abanlloyd above 2100 for tgt of 2250 as it has bottomed out.

TIPS FOR MARKET ON 01 SEP 2008

TOMORROW i.e, on 01 sep 2008 we will watch for nifty whether it trades above 4320 or not, tomorrows closing below 4320 will show weak sentiments for rest of the days in this week.if it closes above 4320 then we may see 4460 to 4500 level at the end of this week.tomorrows closing has got vital importance.its better to not trade till 11:00 hrs as we will watch only nifty movement.
one can stil buy punjlloyd if it trades above 300 throughout the day for next tgt of 320. better entry would be in between 292-296.
one can buy unionbank till 137 for tgt of 149-151 at the end of this week.strong short term chart.

tips for market on 29 aug 2008

tomorrow market may open marginally up tracking u.s dowjones, but closing must be above 35-55 points on nifty.before entering in any position,wait till 11:00 am for slight consolidation and after that create any position, pick stocks with only minimum downside risk.
buy indiabullsrealestate in between 259-263 as it has limited downside risk.
buy punjlloyd in between278-282, it has strong short to medium term chart for tgt above 300, but first tgt of 292-296.
buy ster for tgt of 630 and above
one can accumulate rolta till 309 for tgt of 336-342 within two weeks, as it has strong charting pattern

TIPS FOR MKT ON 28 AUG 2008

TOMORROW MKT WILL DEFINATELY SHOW EXTREME VOLATILE MOVEMENT AHEAD OF TOMORROWS FNO EXPIRY.ANY FURTHER DIRECTION OF THE MKT CAN BE DECIDED AFTER TOMORROWS CLOSING ONLY.LETS WAIT AND WATCH FOR TOMORROW.
BUY PUNJLLOYD IN BETWEEN 280-282 FOR TGT OF 290 TIL FRIDAY.
BUY MPHASIS ON EACH DECLINE FOR TGT UPTO FIRST 240 AND THEN 252, IT HAS STRONG SHORT TO MID TERM CHART.
NO ANY CLEAR BUY SIGNAL FOR ANY STOCK.
clients those have created position in hindalco today can book their profit around 140-140.80,those who have positions in punjlloyd can hold it til 29o or otherwise exit call will be provided. those having bought drreddy@587 can hold it, exit call will be provided.

TIPS FOR MKT ON 27AUG 2008

TOMORROW WE MAY WITNESS SOME STRONG OPENING OF AROUND 25-35 POINTS ON NIFTY,AND CLOSING ABOVE 4380 IS SOMEHOW IMPORTTANT FOR NEXT UPMOVE TO A LEVEL OF 4460-4520 IN THIS MONTH. TOMORROW BANKING STOCKS MAY WITNESS SOME POSITIVE MOVEMENTS.]
BUY BANKINDIA @ CMP FOR TGT OF 266-274.
BUY INDUSINDBANK INBETWEEN 60-60.85 FOR TGT OF 63

TIPS FOR MARKET ON 26 AUG 2008

TODAY ALSO MARKET CLOSED SHOWING SOME WEAK PATTERN.TOMORROW WE MAY SEE SOME WEAK OPENING and almost negative clsing for the market.
buy educomp below 3360 for tgt of 3430-3470 till the end of this week.
buy ivrclinfra around 324-327 for tgt of 333-337.
buy ibrealest on decline upto 290 for tgt of 319 till the end of this week.
mphasis bfl may show some movement tomorrow upto 235-238.

TIPS FOR MARKET ON 25AUG 2008

WHAT will be the direction of market from here onwards is not possible to predict at all. however we may see some stock specific movement in this week. we r still above 4320 on nifty, if we maintain above 4320 for atleast 2-3 days of trading session, then we may again touch 4460-4500 on nifty.
one can buy tata steel above 600 for tgt of 618-623 this week with minimum risk.
stil there r some movement left in ster til 645 level.
hindalco has the potential to touch 140-143 at the end of this week.
buy sail in between 148-149 for new tgt of 156 with stop of 144.

TIPS FOR 21AUG 2008

TODAYS MARKET CLOSING WAS IN POSITIVE BUT WITH LOW VOLUME, GIVING NO ANY CLEAR SIGN OF FURTHER UPSIDE OF MORE THAN 200 POINTS.WHAT I DISCUSSED EARLIER REGARDING MOVEMENT IN METAL SECTOR IN MY PREVIOUS POST, APPEARED TRUE TODAY.CURRENTLY METAL SECTOR IS AVAILABLE WITH MINIMUM RISK AND MAY SHOW UPWARD MOVEMENT OF 10-15%. TRADE CAUTIOUSLY, DONT BE TOO OPTIMISTIC WITH SUCH A MARKET.
BUY SAIL IN BETWEEN 145-146 FOR TGT OF 151 THEN 156 TILL NEXT WEEK WITH STOP OF 138.
ONE CAN ACCUMULATE GLENMARK TILL 640 FOR ONE MONTH TGT OF 700.
go long in aban lloyd with 0% risk at current price for upside of 15-20%.
buy tata steel @ 605 for tgt of 630 till next wednesday.

TIPS FOR MARKET ON 20AUG 2008

TODAY AGAIN MARKET CLOSED WITH NEGATIVE BIAS, 4320 WAS NOT BROKEN BUT STILL TREND IS NOT CLEAR, IF BROKEN THIS SUPPORT THEN AGAIN MAY COME DOWN TO 4030. PLAY VERY SAFELY AT THIS TIME.PHARMA AND IT SECTOR STILL LOOKS GOOD FOR TRADING, IF MARKET RALLYS THEN GO FOR BANKING SECTOR.LIKE BANKINDIA, BANKOF BARODA, KOTAK BANK, AXIS BANK.
GO LONG IN HINDALCO FOR TGT OF 143.
BUY HCC ABOVE 101 FOR TGT OF 108.
ACCUMULATE MPHASISBFL TILL 216 FOR TGT OF 240.

TIPS FOR MARKET ON 19AUG 2008

TODAY'S CLOSING IS ALSO WEAK ON THE CHARTS,HOWEVER IT STOCKS PERFORMED WELL WHAT I SAID IN MY PREVIOUS POST.ROLTA HAS ALMOST REACHET ITS TARGET PRICE.WE HAVE A STRONG SUPPORT AT 4320 ON NIFTY. WE CAN SEE A SHORT TERM RALLY FROM HERE ONWARDS.IT SECTOR STILL LOOKING ATTRACTIVE, IN BANKING SECTOR PREFER BANKINDIA, AXIS BANK AND HDFC BANK.
go long in hindoilexp for tgt of 138-140.no risk
one can make position in mphasis bfl till216 for tgt of 240.

ROAD AHEAD OF THE MARKET FOR 18 AUG ONWARDS

MARKET CLOSED ON THURSDAY GIVING A NEGATIVE QUE FOR THE NIFTY FOR COMING WEEKS, inflation remains a major point of worry for our market, however we have a major support at 4320. still there r some stocks in which someone can go long with least risk.
buy drreddy lab above 592 for tgt of 630 with stoploss below 570.
go long in rolta for tgt of 340.
go long in mphasisbfl for tgt of 240 at the end of this month.
buy pantaloon retail above 382 for tgt of 402
go long in i-flex for tgt of 1380 and then 1430.
IT SECTOR WILL LEAD THE SPACE.

TIPS FOR 13 AUG 08 MARKET

MARKET IS BEHAVING IN A HEALTHY WAY IN A PREEXPECTED MANNER,AS TODAY SOME PROFIR BOOKING WAS EXPECTED AND IT HAPPENED, THATS QUITE GOOD FOR THE HEALTH OF OUR MARKET. we can expect nifty to cross 4680 to 4720 in coming days.
buy chambalfert for tgt of 90-92. with no stop loss.
buy idfc for tgt of 120-125
buy gmr infra for tgt of 115-118.
go long in rolta for tgt of 330.

market for 07 aug 2008

Tomorrow we may witness a movement of 40 points on either side.road ahead of the market is showing a decent flattish movement.we will witness only stock specific movements in coming days as market will be more or less flat only.no big downside in coming days. Auto stocks may lead the show.
one can go for buy in ashokleyland for tgt of 34-36 with stop loss of 30.70
buy rpl at curent price for tgt of 190-194 in coming days.
buy rolta at 306 for tgt of 330 with stop of 300.

tips for 30 jul 2008

tomorrow market will be a flattish one,opening flat with positive closing.one can make a buy at 4150 level of nifty for one month target of 4650.from here market might resume a bounce back to 4620 level in the intermedate term.
stocks to watc out for is BONGAIGAON REF,RPL, IFLEX AND RELCAP.

tips for 20 jun 2008

MARKET ANALYSIS FOR 20 JUN 2008

                                       today nifty just closed at its major support level tracking week global ques, tomaorrow we can see a range of 4470-4530.bettor to buy stocks which are making double battom at tis valuation like relcapital is at its major support of 1140.dont panic buy futures of july series now.a suggestion : please avoid to create any position in between 1000 hrs to 1100 hrs, first get clear view of what happening with the market, then only go for any buy or sell whatever.

TIPS FOR 19JUN 2008

MARKET ANALYSIS FOR 19 JUN 2008

                               today market is closed in a negative bias, but no need to panic, major support on nifty is at 4520, resistance is at 4680, after crossing this level we can witness 4820 on the nifty. continue to invest in tech and pharma sector. media sector has also emerged out today with a surprising movement in NDTV and BALAJITELE.inflation remains a worry for our market.

buy hindoilexp @133 for tgt of 140-147

buy litl @410 for tgt of 422-430

tips for 19 jun 2008

maket to be on 19 jun 2008

nifty has strong support at 4500,a small resistance is 4680, after crossing this we may see a level of 4820 on nifty, but be cautious while selecting your stocks, better sectors are still technology and pharma and one more textile industries. some of the strong stocks are divislab, biocon,ranbaxy, infosystech,satyam,iflex, rpl and cairn india.

buy divislab in between 1600-1608 for tgt of 1636 and 1660 till friday

tips for 16 jun 2008

market to be on 16 jun 2008
market may rangebound in between 4410-4640 in next week, beeter to invest in technology and pharma sector.
buy IFLEX SOLUTIONS FOR TGT OF 1380 THEN 1450 WITHIN TWO WEEKS
BUY CAIRN INDIA ABOVE 300 FOR TGT OF 322 IN TWOO WEEKS
SOME GOOD STOCKS ARE INFODSYS AND SATYAMCOMP.

market report for 11 jun 2008
today also market has not shown any positive trigger, no traces of short covering.still market is under presuure and wiill remain sane in coming days. Be cautious while creating any position.
RPL is a good bet at this time, may cross 200 yet again if mkt supports,
CAIRNindia is also a asfe bet, may head towards a new high of 350.

concepts regarding inflation

It seems that people often confuse the cause of inflation with the effect of inflation and unfortunately the dictionary isn't much help. As you can see in my article What is the Real Definition of Inflation? the modern definition of inflation is"A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money..."
In other words according to this definition inflation is things getting more expensive.
But that is really the effect of inflation not inflation itself. The American Heritage® Dictionary of the English Language, Fourth Edition, Copyright © 2000 Published by Houghton Mifflin Company goes on to say:
...caused by an increase in available currency and credit beyond the proportion of available goods and services.
In other words, the common usage of the word inflation is the effect that people see. When they see prices in their local stores going up they call it inflation.
But what is being inflated? Obviously prices are being inflated. So this is actually "price inflation".
Price inflation is a result of "monetary inflation".
Or "monetary inflation" is the cause of "price inflation".
So what is "monetary inflation" and where does it come from?
"Monetary inflation" is basically the government figuratively cranking up the printing presses and increasing the money supply.
In the old days that was how we got inflation. The government would actually print more dollars. But today the government has much more advanced methods of increasing the money supply. Remember, "monetary inflation" is the "increase in the amount of currency in circulation".
But how do we define currency in circulation? Is it just the cash in our pockets? Or does it include the money in our checking accounts? How about our savings accounts? What about Money Market accounts, CD's, and time deposits?
But back to the question of the cause of inflation. Basically when the government increases the money supply faster than the quantity of goods increases we have inflation. Interestingly as the supply of goods increase the money supply has to increase or else prices actually go down.
Many people mistakenly believe that prices rise because businesses are "greedy". This is not the case in a free enterprise system. Because of competition the businesses that succeed are those that provide the highest quality goods for the lowest price. So a business can't just arbitrarily raise its prices anytime it wants to. If it does, before long all of its customers will be buying from someone else.
But if each dollar is worth less because the supply of dollars has increased, all business are forced to raise prices just to get the same value for their products.
How Do I Calculate the Inflation Rate?
The following article explains how to calculate the current inflation rate, if you know the Consumer Price Index. If you don't know it, you can find it here.
If you don't care about the mechanics and just want the answer, use our Inflation Calculator.
The Formula for Calculating Inflation
The formula for calculating the Inflation Rate using the Consumer Price Index is relatively simple. Every month the Bureau of Labor Statistics (BLS) surveys prices and generates the current Consumer Price Index (CPI). Let us assume for the sake of simplicity that the index consists of one item and that one item cost $1.00 in 1984. The BLS published the index in 1984 at 100. If today that same item costs $1.85 the index would stand at 185.0
By looking at the above example, common sense would tell us that the index increased (it went from 100 to 185). The question is how much has it increased? To calculate the change we would take the second number (185) and subtract the first number (100). The result would be 85. So we know that since 1984 prices increased (Inflated) by 85 points.
What good does knowing that it moved 85 do? Not much. We still need a method of comparison.
Since we know the increase in the Consumer Price Index we still need to compare it to something, so we compare it to the price it started at (100). We do that by dividing the increase by the first price or 85/100. the result is (.85). This number is still not very useful so we convert it into a percent. To do that we multiply by 100 and add a % symbol.
So the result is an 85% increase in prices since 1984. That is interesting but (other than being the date of George Orwell's famous novel) to most people today 1984 is not particularly significant.
calculating a specific Inflation Rate
Normally, we want to know how much prices have increased since last year, or since we bought our house, or perhaps how much prices will increase by the time we retire or our kids go to college.
Fortunately, The method of calculating Inflation is the same, no matter what time period we desire. We just substitute a different value for the first one. So if we want to know how much prices have increased over the last 12 months (the commonly published inflation rate number) we would subtract last year's index from the current index and divide by last year's number and multiply the result by 100 and add a % sign.
The formula for calculating the Inflation Rate looks like this:
((B - A)/A)*100
So if exactly one year ago the Consumer Price Index was 178 and today the CPI is 185, then the calculations would look like this:
((185-178)/178)*100 or (7/178)*100 or 0.0393*100
which equals 3.93% inflation over the sample year. (Not Actual Inflation Rates). For more information you may check the current Consumer Inflation Rate and Historical Inflation Rates in table format. Or if you believe a picture is worth a thousand words you may prefer the Annual Inflation Rate plotted in Chart format.
What happens if prices Go down?
If prices go down and we experienced Price Deflation then "A" would be larger than "B" and we would end up with a negative number. So if last year the Consumer Price Index (CPI) was 189 and this year the CPI is 185 then the formula would look like this:
((185-189)/189)*100 or (-4/189)*100 or-0.021*100
which equals negative 2.11% inflation over the sample year. Of course negative inflation is deflation.
Rising inflation was the most recent ticklish political issue that hit the Manmohan Singh government. But was inflation rising because of price rise in essential commodities? Or was it because of the 'erroneous method' of calculating inflation?
Some economists assert that India's method of calculating inflation is wrong as there are serious flaws in the methodologies used by the government.
Economists V Shunmugam and D G Prasad working with India's largest commodity bourse -- the Multi Commodity Exchange -- have come out with a research paper arguing that the government urgently needs to shift the method of calculating inflation.
Saying that there are serious flaws in the present method of calculating inflation, the paper India should adopt methodologies in developed economies.
So how does India calculate inflation? And how is it calculated in developed countries?
India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.
Most developed countries use the Consumer Price Index (CPI) to calculate inflation.
Wholesale Price Index (WPI)
WPI was first published in 1902, and was one of the more economic indicators available to policy makers until it was replaced by most developed countries by the Consumer Price Index in the 1970s.
WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.
Consumer Price Index (CPI)
CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.
\CPI is a fixed quantity price index and considered by some a cost of living index. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one.
Economists Shunmugam and Prasad say it is high time that India abandoned WPI and adopted CPI to calculate inflation.
India is the only major country that uses a wholesale index to measure inflation. Most countries use the CPI as a measure of inflation, as this actually measures the increase in price that a consumer will ultimately have to pay for.
"CPI is the official barometer of inflation in many countries such as the United States, the United Kingdom, Japan, France, Canada, Singapore and China. The governments there review the commodity basket of CPI every 4-5 years to factor in changes in consumption pattern," says their research paper.
It pointed out that WPI does not properly measure the exact price rise an end-consumer will experience because, as the same suggests, it is at the wholesale level.
The paper says the main problem with WPI calculation is that more than 100 out of the 435 commodities included in the Index have ceased to be important from the consumption point of view.
Take, for example, a commodity like coarse grains that go into making of livestock feed. This commodity is insignificant, but continues to be considered while measuring inflation.
India constituted the last WPI series of commodities in 1993-94; but has not updated it till now that economists argue the Index has lost relevance and can not be the barometer to calculate inflation.
Shunmugam says WPI is supposed to measure impact of prices on business. "But we use it to measure the impact on consumers. Many commodities not consumed by consumers get calculated in the index. And it does not factor in services which have assumed so much importance in the economy," he pointed out.
But why is India not switching over to the CPI meIs the government getting needlessly hysterical about inflation? Many people think it is okay to tolerate some inflation if, in return, it is possible to sustain higher growth rates. Nothing matters as much for peace, prosperity and poverty alleviation as high GDP growth, so I would always advocate any policy which delivers higher sustained GDP growth.
However, the link between inflation and growth is complex. High inflation does not give high growth. The growth miracles of Asia, where above 7% growth was sustained over a 25-year period, were not associated with high inflation. In fact, countries with high inflation have tended to have low growth.
In the business cycle, an acceleration of inflation can support a temporary acceleration of growth. In India, expected inflation has gone up from roughly 3% in 2004 to roughly 7% today--a rise of 4 percentage points. Interest rates have risen by less than 4 percentage points. As a consequence, real interest rates have actually gone down. Borrowing has become cheaper; we have a credit boom; and this is giving heightened GDP growth.
If inflation now stands still at 7%, this boost to GDP growth will fade away. Episodes where inflation went up are associated with a brief acceleration of GDP growth. A government can jolt an economy by raising the inflation rate. This heightened growth is not sustained. Conversely, achieving high sustained GDP growth is about fundamental issues of economic reform, and does not concomitantly require high inflation.
One of the great strengths of India is that the political system just does not accept high inflation. This is one area where politicians have been ahead of the intellectuals. Inflation of 3% is politically acceptable, and inflation above 5% sets off alarm bells.
The government that can jolt an economy by raising the inflation rate then has to go through the costly process of wringing out the inflation, to get back to 3%. Since there is no tradeoff between inflation and GDP growth, Parliament is right in demanding low inflation and high GDP growth.
Currently, in India, we go through boom-and-bust cycles; sometimes GDP growth rates are very high and sometimes GDP growth rates drop sharply. This boom-and-bust cycle is unpleasant for every household. There is a powerful international consensus that stabilising inflation reduces this boom-and-bust cycle of GDP growth.
The ideal combination, which has been achieved in all mature market economies, is one involving low inflation, which is also predictable and non-volatile. Low inflation volatility induces low volatility of GDP growth.
Low and predictable inflation also reduces the number of mistakes made by entrepreneurs in formulating investment plans. What India does not have is an institutional capacity for delivering predictable, non-volatile inflation of 3%.
In socialist India, the way to deal with an outbreak of inflation was to do government interference in commodity markets. A few commodities that "cause" inflation are identified, and the government swings into action: banning exports, giving out import licences, banning futures trading, sending the police to unearth "hoarding", etc.
This is deeply distortionary. Milk exports were banned, and milk prices fell. But why should milk farmers pay for a macroeconomic problem of inflation? The cost of bringing down inflation needs to be dispersed all across the economy.
If milk prices had been allowed to rise, then more labour and capital would shift from unproductive cereals to high-value milk production. India has the potential to be the world's biggest exporter of milk. But this requires a sophisticated web of producers, supply chain, exporters, factories, etc.
This sophisticated ecosystem will not flourish when the government meddles in the milk industry. A meddlesome government will go through the whiplash of doing an MSP one day because milk prices are low and banning exports another day because milk prices are high.
There is something profoundly wrong about a government that interferes in what can be imported and what can be exported. If the export of ball bearings were sometimes banned by the government, you can be sure there would be fewer factories to build ball bearings.
India is evolving from a socialist past into a mature market economy. How can predictable, non-volatile inflation of 3% be achieved? The recipe that has been developed worldwide is to devote the entire power of monetary policy to this one task. In India, the RBI has a complex mandate spanning over many contradictory roles. This has led to failures on inflation control.
In a mature market economy, a modern central bank watches expected inflation with great interest. Active trading takes place on the spot and derivatives markets, for both ordinary bonds and inflation-indexed bonds. Using these prices, a modern central bank is able to infer expected inflation.
When the short-term interest rate is raised or lowered, in order to respond to changes in expected inflation, there is a slow impact on the economy, possibly spread over two to three years. A modern central bank has the economic knowledge required to watch out for expected inflation deep in the future, and respond to it ahead of time, so as to deliver inflation that is on target.
In India's case, the RBI Act of 1934 predates modern monetary economics. In other countries, fundamental reforms have been undertaken in order to refashion monetary institutions in the light of modern knowledge. As an example, in the late 1990s, when Tony Blair and Gordon Brown won the election, they refashioned the Bank of England as a focused central bank which has three core values:
Independence: the Bank of England sets the short rate without involvement from the Ministry of Finance.
Transparency: the entire process through which interest rate setting is done is fully transparent so that the financial markets always know exactly what is being done and why.
Accountability: the Bank of England is accountable for hitting an inflation target. All tasks other than the inflation target were removed from the Bank of England.
The bad drafting of the RBI Act of 1934 is the ultimate cause of the distress of milk producers today. These linkages are not immediately visible, but they are very real. It is because India does not have a proper institutional foundation for monetary policy that we are reduced to distortionary mechanisms for inflation control.

Finance ministry officials point out that there are many intricate problems from shifting from WPI to CPI model.
First of all, they say, in India, there are four different types of CPI indices, and that makes switching over to the Index from WPI fairly 'risky and unwieldy.' The four CPI series are: CPI Industrial Workers; CPI Urban Non-Manual Employees; CPI Agricultural labourers; and CPI Rural labour.
Secondly, officials say the CPI cannot be used in India because there is too much of a lag in reporting CPI numbers. In fact, as of May 21, the latest CPI number reported is for March 2006.
The WPI is published on a weekly basis and the CPI, on a monthly basis.
And in India, inflation is calculated on a weekly basis.
Is the current inflation spiral primarily on account of agricultural shortages? Will the RBI's policy of raising interest rates kill the current expansion?
The pickup in headline inflation from about 4 per cent to over 6 per cent during the last 12 months, and the Reserve Bank of India's moves to rein it in, have sparked a vigorous debate in India. In our view, inflation is a problem - and the RBI has been correct in taking steps to bring it under control.
The debate has given rise to eight myths about inflation in India. It is useful to examine each of these myths so as to gain a clearer view of the issues - and the appropriate policy response.
It's all about food prices. Inflation stripped of food and energy, or other volatile components, is still rising. For example, between March 2006 and March 2007, year-on-year wholesale price index inflation excluding food and energy rose from 2 per cent to 7.9 per cent.
The pickup in inflation is all due to base effects from last year's low inflation. The notion is that depressed inflation in early 2006 exaggerates the rise in inflation during early 2007 on a year-on-year basis. But the three-month moving average of month-on-month, seasonally adjusted inflation has risen by about 3 percentage points over the past year - the same as year-on-year inflation.
Inflation will fall back to a normal range on its own. Leading indicators of inflation point one way: continued price pressures. Excess capacity has shrunk to a 14­year low, according to the NCAER. In addition, there are signs of overheating in real estate and labour markets, with surveys showing the salaries of skilled workers rising by around 15 per cent annually.
Broad money growth has hardly slowed, still registering about 20 per cent year-on-year. With nominal GDP growing at about 14 per cent, this seems a classic case of too much money chasing too few goods - a recipe for inflation.
Fresh capacity will come onstream soon and alleviate constraints (or, what we really need are reforms to encourage supply). Investment and reforms are welcome - not just to combat inflation, but to generate growth and employment that can alleviate poverty and raise living standards. However, they take too long to come onstream to dampen inflation now. Indeed, inflation has risen despite double-digit growth in private fixed capital formation over 2002/03-2005/06, accompanied by an 8.5 percentage point rise in the ratio of overall investment to GDP.
Monetary tightening will kill the expansion. Keeping inflation under control, in fact, is key to sustaining the expansion. Waiting until inflation rises to higher levels will only make the job of stabilising prices harder. The international experience on this score is clear: When inflation expectations get entrenched at high levels, central banks have to tighten even more sharply to get inflation down.
Administrative measures are as good as - or better than - monetary tightening for controlling inflation. Some administrative measures can work against inflation control in the long run by discouraging supply. Banning exports and futures trading for selected commodities, for example, raises the cost of doing business and creates uncertainty about the regulatory environment. This can only discourage production, worsening supply constraints.
A stronger rupee does nothing to control inflation. A stronger rupee helps reduce inflation because it lowers the import prices of oil, other raw materials and capital goods and this, in turn, lowers the cost of production. It also reduces the prices of import-competing goods, like steel.
A related myth is that a strong rupee will kill the economy by hurting exporters. A stronger rupee does reduce the rupee value of export earnings - but it also reduces the cost of imported inputs, and to the extent that it dampens inflation, it limits the need for interest-rate hikes. Moreover, exporters are in a robust position now: as an earlier article in this newspaper pointed out, among 808 companies surveyed, net profits rose 67 percent in the October-December quarter.
Policy tightening will deny credit to small businesses and the common man, as well as hurt the poor. It is true that small businesses and the common man have only limited access to credit. This is a serious problem, but not one that can be solved through easy monetary policy.
The poor, meanwhile, not only have limited access to credit, but live on fixed incomes and have few or no assets to hedge against inflation - so that high inflation hurts them more than higher interest rates. Consistent with this idea, research by William Easterly and Stanley Fischer has shown that in a range of countries, higher inflation is associated with a lower share of national income accruing to the poor, a higher poverty rate, and a lower inflation-adjusted minimum wage.
In light of these realities, the RBI is right to have taken steps to rein in inflation. Compared with many other emerging countries, India has an admirable record of price stability. Maintaining this track record will pay benefits in terms of sustained growth with macroeconomic stability, and it will protect the most vulnerable Indians from the ravages of inflation.
Kalpana Kochhar is mission chief for India at the International Monetary Fund and Charles Kramer is a division chief responsible for the Indian economy.
Several theories are put forth by fraudulent experts who normally hide when there is bad time and emerge to explain growth , when it starts to happens. It is same way in stock markets when , the share markets boom, every TV channel and newspaper has suddenly several experts and investment advisors shouting to explain why this is happening. But when opposite happens they simply disappear and hide. The theories of trying to control Inflation, by RBI and GOI are outdated and foolish attempts and based on economics theory of regulating money markets and State intervention whichbhave little crdibility. These can only work in a disciplined market and stable matured economic conditions like in USA or UK. India is Far far away from it. A corrupt society, with severely unequal distribution of money, black money almost equal to official GDP generated every year, easy money flow form abroad, delicensing and speculations without any control, property prices soaring up without any logic, idiotic encouragemenmt ot retailing sector that has little to add value but contribued to fire in real estate markets, bullion prices are going up and share scrips have also gone up suddenly never seen in past except for brief period of harshad Mehta scam , but that was nothing as now. The government figures are fraudulent. I challenge GOI and all State governments to produce actual retail prices of 100 household items of daily consumption,semi durables and durable goods as on 2000 April and now ( except for electronic based items).The real inflation to consumer has been 15-20% per year range in most goods in last 5 years including drugs and property inflation 30-60% per year over last 5 years. It is now out of reach of common man whose salry has increased only at rate of 5% per year.High property rates result in panic and higher rents and cost of business which in turn fuel up prices. There is too much of liberalization with directors and senior executives of corporatuons fixing for themselves lacs of rupees of salaries per month or year in false euphoria created of India shining and in name of liberalisation of company laws.The money coming from abroad is mostly laundered money that is fueling property and bullion prices. Also share prices. Uncontrolled loot is going on in country with high speculation, land mafias busy , SEZs being set up with no future benefits, shamelesds and exhorbitant rate property auctions , etc with little or no control of government. The funny Institutes like RBI,SEBI etc and Our PM and FM who are pseudo experts ( in fact novices) in economics and Public administration are merely trying sketchy methods without any base and effectiveness just to show action knowing that what they are doing is an eternal run of the mill cut and edit exercise which is half hearted trial and error attempt with not much results. The situation in India has become pretty bad at cost of average consumer whose life has become hellish now. The promised dream shown when LPG was stared in 1991 has gone just the opposite. Instead of expansion of goods and quality improvements, and consequent price decreases, prices have increased severely and quality standards have gone down. Yes , a few lac people have become millionaires suddenly in few years. That is net gain of 15 years LPG and leadership of fraudulent economic experts like ManMohan Singh and Chidambram. The fall of congress is certain as this party no longer deserves to exist as it has lost relevance with most of its leaders boneless, corrupt and dividing society centered around one family projecting it as opoor substitute for Queen of Enmgland and a mascot of virtues and capabilty , in attempt to woo voters forgetting that their competitive parties will do the same quickly. Indian scenario looks pretty bad. It is actually shameful that after 60 years of independence , we have so high price rise rate, out of proportion real estate prices, rampant corruption, virtually non functioning judiciary,corrupt police organisations and general state of affairs which we can call laissez faire, safely. RBI will have to learn some new lessons and stop unnecessarily try to play with money markets as nothing is going to happen with 1% CRR or interest up or down,.In fact Indian governments are suffering from illusion that Government has duty to run business and manipulate markets. What government has to do is ban exports of fruit vegetable and cereals, release at least 10 million sq meters of land in all cities and metros in next 6 months, stop foolish auctioning of commercial sites, stop foolish SEZ policy that will be mere wastage of resources and will uproot farmers without an y long term benefits but will create social problems and see that Indian manufacturing sectors speeds up and goes higher than China. There should be control on salaries given to public servants and Private sector as this loot ultimately comes from pocket of consumer and tax payers and bound to create inflation as easy money is spent easily. Will our planners and senior bureaucrats try to understand above scenario and mechanism and take action before a civil war like situation emerges in the country?The inequality is actually increasing in all terms including earning power. This will rock the society soon.