Monetory Policy Dilemma

Out of prominent securities market in the world, the Indian stock market is definitely unique market, as India is an developing country and growth of Indian economy has been significantly characterized by to domestically consumption (rather than export as in case of China). And if you look at the capital market indicators (Indices) across globe; Indian Sensex & Nifty are certainly has shown significant growth.

Now !!

Coal India Limited (CIL) set to rock Indian Stock Market with its big ticket IPO worth Rs. $3.9 billion or close to Rs. 13,000+ crore.

• Qualified Institutional Buyer (QIB) are eligible for more than 50% of the subscription available

• It means Foreign Institutional Investors (FIIs) have an attractive proposition to buy
• It means in this quarter significant amount of Forex inflow is likely to infuse liquidity in Indian economy
• It means, already alarming inflation is likely to see newer heights
• It also means that our own currency the Rupee will appreciate ($1= Rs.39; Rupee appreciate means its equivalent value against US dollar increases i.e. the Rupee movement from $1=Rs. 40 is an appreciation of Rupee & depreciation of dollar against each other)
  
• The appreciation of Rupee means import (Oil in particular) will be relatively cheaper and exports (software/services) will be costlier
  
• It means Reserve Bank of India (RBI) is likely to either curtail Forex Inflow or Raise key monetory policy indicators (most likely interest rates)
• If interest rates are to increase, it will in turn again attract more Forex money inflow
• So it will be interesting to see what would happen to Forex money inflow

* Short term prediction
** Implication of curtailing Forex Inflow has not been predicted here.