Back we go to the g
orilla! While economists and experts are lavishing praise on India’s capability to attract capital flows resulting in India’s tremendous economic progress, it’s surprising how these experts have quite succinctly ignored debilitating warnings released by global advisories and even IMF, which commented as recently as in February 2008, “Large capital inflows are complicating the conduct of monetary policy, creating excess liquidity and pressuring the rupee.” Morgan Stanley’s clear warning advisory mentions that even as private capital expenditure has picked up significantly to an estimated 13.7% of GDP in FY 2006-07 from 5.9% in FY 2002-03, capital expenditure on infrastructure has improved at a relatively slower pace to 4.2% from 3.5% during the same period. But the pathetic part is that in order to sustain a GDP growth of 9%, or 10%, infrastructure spending should have been 7-8% of GDP, and not the much achieved 4.2%.
This slow pace of investment is clearly due to overheating of the economy caused by stronger demand growth (due to excess capital inflows), belatedly forcing RBI to tighten its monetary policy. While RBI consistently warned about the ill effects of huge inflows, FM P. Chidambaram was reluctant to send any wrong signals to foreign investors. If only these flows had been controlled right at the start – with a 250-watt electric rod – our economy could have well grown at a pace much beyond the current rates of 8-9%. If only our policy makers knew that hell hath no fury as a group of hairy ladies scorned. If only...
Will the market volatility ever end?
Skepticism, ambiguity, apprehension! What else than these three words can better describe the ongoing dilemma in the Indian capital market. Hovering between 16,457 and 18,895 levels since the last month’s carnage, it looks as if the Sensex is behaving worse than the hairy tribe we talked about earlier.
The Sensex, after reaching a lifetime high of 21,206 on January 10, 2008, had dropped to a appalling low of 15,332 in less than two weeks. And well, investors blamed the fears of a recession in the US, Reliance Power’s mega issue (that sucked out a whopping $180 billion out of the market), heavy selling by FIIs (foreign institutional investors) to everything under the sun, for the so-called ‘correction’. But with economic fundamentals remaining strong, though not as strong as before, the markets are still not in a mood to stabilise, forget about going up. What gives then? “Skepticism is still there,” says Satish Kannav, Senior Analyst, Arihant Capital Markets, mirroring the sentiments of other experts, “Certainly, it will take time before confidence returns, and that too will happen only once the market recovers at least 60-odd percent of its previous fall.”
No doubt, liquidity has increased after Reliance Power listing, but the return to previous volumes is still a big question mark. Even FIIs seem more risk averse than ever before. Following the fears of US recession – along with the sub-prime hit – and a liquidity crunch, they continue to be sellers in emerging markets, like India. For the month of January, net FIIs investments in the Indian market stood at a negative Rs.130.35 billion. Since January 22, 2008, when the Sensex fell over 2,000 points before recovering a bit, FIIs have been net buyers only on 7 days. “Unless FIIs turn buyers, markets will remain volatile and lack directional conviction,” agrees Amitabh Chakraborty, President Equity, Religare Securities, “and that might happen after the Budget.”
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Source : IIPM Editorial, 2008
orilla! While economists and experts are lavishing praise on India’s capability to attract capital flows resulting in India’s tremendous economic progress, it’s surprising how these experts have quite succinctly ignored debilitating warnings released by global advisories and even IMF, which commented as recently as in February 2008, “Large capital inflows are complicating the conduct of monetary policy, creating excess liquidity and pressuring the rupee.” Morgan Stanley’s clear warning advisory mentions that even as private capital expenditure has picked up significantly to an estimated 13.7% of GDP in FY 2006-07 from 5.9% in FY 2002-03, capital expenditure on infrastructure has improved at a relatively slower pace to 4.2% from 3.5% during the same period. But the pathetic part is that in order to sustain a GDP growth of 9%, or 10%, infrastructure spending should have been 7-8% of GDP, and not the much achieved 4.2%.This slow pace of investment is clearly due to overheating of the economy caused by stronger demand growth (due to excess capital inflows), belatedly forcing RBI to tighten its monetary policy. While RBI consistently warned about the ill effects of huge inflows, FM P. Chidambaram was reluctant to send any wrong signals to foreign investors. If only these flows had been controlled right at the start – with a 250-watt electric rod – our economy could have well grown at a pace much beyond the current rates of 8-9%. If only our policy makers knew that hell hath no fury as a group of hairy ladies scorned. If only...
Will the market volatility ever end?
Skepticism, ambiguity, apprehension! What else than these three words can better describe the ongoing dilemma in the Indian capital market. Hovering between 16,457 and 18,895 levels since the last month’s carnage, it looks as if the Sensex is behaving worse than the hairy tribe we talked about earlier.
The Sensex, after reaching a lifetime high of 21,206 on January 10, 2008, had dropped to a appalling low of 15,332 in less than two weeks. And well, investors blamed the fears of a recession in the US, Reliance Power’s mega issue (that sucked out a whopping $180 billion out of the market), heavy selling by FIIs (foreign institutional investors) to everything under the sun, for the so-called ‘correction’. But with economic fundamentals remaining strong, though not as strong as before, the markets are still not in a mood to stabilise, forget about going up. What gives then? “Skepticism is still there,” says Satish Kannav, Senior Analyst, Arihant Capital Markets, mirroring the sentiments of other experts, “Certainly, it will take time before confidence returns, and that too will happen only once the market recovers at least 60-odd percent of its previous fall.”
No doubt, liquidity has increased after Reliance Power listing, but the return to previous volumes is still a big question mark. Even FIIs seem more risk averse than ever before. Following the fears of US recession – along with the sub-prime hit – and a liquidity crunch, they continue to be sellers in emerging markets, like India. For the month of January, net FIIs investments in the Indian market stood at a negative Rs.130.35 billion. Since January 22, 2008, when the Sensex fell over 2,000 points before recovering a bit, FIIs have been net buyers only on 7 days. “Unless FIIs turn buyers, markets will remain volatile and lack directional conviction,” agrees Amitabh Chakraborty, President Equity, Religare Securities, “and that might happen after the Budget.”
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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