7 Principales obstáculos enfrentados

It was carnage that the world woke up to on 27th of February 2007. The Shanghai Composite crashed by 9% followed by vicious falls recorded in most of the other market indexes around the world. Dow Jones corrected by near 400 points, NASDAQ by about 100 points. HANGSENG and NIKKEI 225 both staged a record fall of over 500 points.

Oblivious of what was happening in other countries, Indians woke up on 28th February with a smile. The Union Minister of Finance was supposed to table the budget around 11 in the morning. Both NSE50 (commonly called NIFTY- market index for National Stock Exchange of India) and SENSEX (market index of Mumbai Stock Exchange) had been faring rather poorly ever since 08th of February after attaining respective all time peak.

Inflation level was at all time high. Never the less, with GDP touching 9.2%, the foreign exchange coffer brimming with 180 billion dollars (US$), the Finance Minister was likely to pull out some magic card which could provide new momentum to the economy and especially to the share market. Expectations ran high for that Midas touch which could re- energies the sentiments so that indexes could realign themselves back on track aiming at the sky. Yet, before any thing could happen, NIFTY fell from 3893 to 3675!

Finance Minister possibly had woken up facing the wrong side of the bed. He was dull. The budget, as a result was mundane! The market indexes, which were trying to salvage after the initial blow, lost vitality and failed to recover. Result was common. Newspapers and media ransacked their chests to splash the front pages with photographs of hapless investors - head bowed down with chin almost touching the ruffled hair sprouting from the chest.

I cursed myself for not writing this book a fortnight back. This was bound to happen but had my article been published a fortnight back and been seen by some investors, they would be smiling today. Never the less, this is not just a stray incident. This possibly marks the beginning of a new era called deflation, which would accompany us for quite some time. Hence, it is not too late for me to draw up the landscape that obviously eluded the vision of many.

The world market has been upbeat for quite some time now. The movement of indexes, around the world, has been mostly unidirectional i.e. upwards. However, there was a

break of tune between May 10, 2006 and June 15, 2006 when major exception to above occurred as everything went whirling down around that time. Be it share market of any geographical location or for that matter, script of any industry wherever located, the avalanche was ominous to all and subjected everything to plunge down till the movements came to a halt by middle of June last year. It was not just capital markets. The mayhem took into its spiral even the bullion too forcing Gold and Silver, too, to decline sharply.

Surprisingly, from around middle of June last year, practically all capital markets turned around and with the exception of another correction (of much less virulence) during end part of July, never really looked back. Most of the indexes worldwide attained new all time high levels and the dazzle of new glory gradually faded away the scar of blemish left between May and June 2006.

Even amidst the glory of unprecedented market appreciation there was an element of discord since till beginning of 2007, Gold and capital markets were moving along divergent paths. Not to be left behind, Gold, too, took off but by then (January 2007) most of the indexes of capital markets was comfortably flying high up in the sky.

With practically all currencies prevailing around the world being essentially paper based, Gold price should logically have no forbearance on capital markets and therefore, the correlation I am about to draw may raise may eyebrows in disbelief.

3. GOLD:

Let us now get to figures. Gold cash, in international market, had attained a high of US$ 730 on May 12, 2006 wherefrom it corrected to $543 levels by June 14, 2006. In other words, the correction comprised of a decline by $187 or nearly 25% by value. Gold appreciated herefrom to $676 levels by July 17, 2006 but retraced back to $ 559 levels by October 04, 2006. In other words, net appreciation in price of Gold between 14th June and 4th October last year measured up to $ 16 or 2.95% only.

Gold price took off herefrom and with the exception of choppy trade during the month of December 2006, did not turn around in true sense of the term. The value of Gold attained the high of $689 by 26th February 2007. Compared to the low price prevailing on 14th June last year, appreciation ratio wise came to 26.88% (say 27%).

In the backdrop of the fact that the price of Gold had fallen by 25% during May/June last year, the ratio of appreciation, as on 26th February was almost same. With appreciation working out marginally better than the correction, a phase of choppy movement on account of profit taking was expected which, unfortunately, coincided with recent holocaust in capital market. The extents of retracement in Gold value, however, stayed limited to $29 only or say mere 4.2%. Pictorial presentation of daily chart of Gold cash is furnished hereunder: