Equities trading near lows, derivatives including the PCR has moved on to a low 1.05 showing that the down move in equities will be limited. However after Friday’s trading at 8.55% yields are already further down to 8.47% very encouraging to the RBI Governor to begin rate cuts in earnest and there in lies another potential breakpoint for the market after policy announcement on Friday as rate cuts are unlikely to play into the Indian story for another 4-5 months., inflation drops well in progress otherwise.
Moodys’ and goldman Sachs ( Jim O Neill) have already sounded dire Forex payments warnings with retail FDI having counted as negative. India’s fixed income exposure outside continues to look healthy with recent outward and inward transactions of sizable value completed per expectations so we stil have time to repair our outlook.
Apart from revisiting retail FDI , whence the six months figure of $20 bln in FDI could move faster in the
remaining fiscal, we also need to get our power sector investments going again. 2012 will be better for Fixed Capital formation as the new 5 year plan makes fresh proposed investments in its first year and briniging the growth imperative back could bring back the same additionally.
Fortunately, India’s banks are sitting on good capital reserves to accelerate credit where it is in the right stage whether for outward FDI or domestic projects thru domestic and International/PE equity. Infra structure projects’ longer gestation from the various Bombay Metro projects to the Harbor Sea link (Sewri) to be bid by Mukesh ambani and investors’ rejection of the same show the challenge ahead of us in investments in infrastructure as both fixed income markets and equities need to vcover short term returns to recover their higher costs for the scarce capital. 30 year capital can come to projects from private players only if longer debt is assured of better financial infrastructure apparently,else funding India’s $2.5 tln infrastructure gap and thus maintaining the growth imperative was well within our reach in 2011
Negative Gross Fixed capital formation after a dull 8% growth in the June quarter has skewed India’s relationship witht he credit agencies. It’s uneven relationship and the last minute slowdown when China is steadying ships is a confusing signal for the market watchers.
Unfortunately RBI cannot do much more right now except sing paeans to the success of inflation being in control
We are not alone in the slowdown nor we ever had any reason for our equity markets to be so optimistic in the last six months, but somehow we missed our growth imperative in 2010 and 2011 before being caught inthe slowdown, looking at the fall now negating our previous accomplishments rather than allowing us a wait and watch period.
- Healthcare remains free – 100% FDI (awardz.wordpress.com)
- India’s FDI renewal – Extant FDI policy guidelines (FDI in Multi-Brand Retail) (advantages.us)
- China in Brazil: Increasing FDI to $27 bln (advantages.us)
- National Manufacturing Policy / Zones (awardz.wordpress.com)
- Foreign Banks in India: India a good FDI destination again (advantages.us)
- ‘India, the Most Disappointing Nation Among BRIC’ (currentindiaaffairs.wordpress.com)
- FDI failures (awardz.wordpress.com)