The India PM Report – S&P forces the blues on to India

English: Prime Minister Manmohan Singh in the ...
English: Prime Minister Manmohan Singh in the Opening Plenary – Resillient india: 25 years of Economic and Social Progress. Participants captured during the World Economic Forum’s India Economic Summit 2009 held in New Delhi, 8-10 November 2009. (Photo credit: Wikipedia)

India’s first risk on rally in a long time has probably been nipped in the bud effectively by the S&P announcements ahead of the IIP data for what is likely the worst quarter for the Indian Economy Credit Suisse joins us in suggesting June’s numbers would not be good but that the next few months are unlikely to be as bad as Pranab steps out to Raisina Hill from the Congress stable and Manmohan Singh itches to take control and bring in a 1 Tln worth of projects back in the reckoning

The Rupee will suffer all week and thus equities will have to stay away from tracking the upside they had started on in the morning earlier as S&P gets ready to probably convert the negative outlook into a lasting downgrade that takes India below BBB- It won’ t be the first time S&P has pre- empted a downgrade based on the last of a string of bad results for the Indian Economy as it also holds a unregulated negative bias and wants to play catch up with other global downgrades more than review the reasons set in the outlook for a downgrade/upgrade. Brazil and Russia are both at BBB after frequent downgrade. Brazil has cut interest rates 6- times since August 2011 and GDP is still contracting as of June 2012. If the downgrade does not happen it would be because indian liquidity problem long solved has taken interest rates to a low of 8.1% and after a rate cut this weekend the interest rates would trend down below 8% before growth also responds. The problems of the CAD and the Fisc have hardly been solved but are unlikely to see any deterioration and political inaction is unlikely to take our costs or the fiscal and current deficit to any worse levels. For Fiscal 2013 we would repair the deficits to at least 5.5% and 3.5% despite the political inaction.  The correction of the currency to 56+ levels factors in the current deficit led correction and from here fiscal measures like a n increase of more than 10% in Petrol/Gasoline prices at the pump that take care of some of the Oil import led creeps on to fiscal discipline

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