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Straight from the Specialists

India Markets Weekahead: Driven by hope in an election-led rally

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The New Year was ushered in with a steep and sudden correction in the broader indexes, with the Nifty closing 1.63 percent lower at 6,211. However, the mid-cap and small-cap indexes outperformed.

Though the holiday mood was evident, it was a politically charged week. The newly installed Aam Aadmi Party (AAP) government in Delhi won a confidence motion with the support of the Congress. They subsequently announced power subsidies after granting water sops last week. Prime Minister Manmohan Singh addressed a rare press conference, the third in 10 years, announcing his intent of handing over the baton to a new prime minister.

Though Singh’s press conference did not have any anything for the markets to react, the media space grabbed by the AAP and its rising momentum is forcing market analysts to take stock. A slew of India Inc executives, such as former Infosys CFO V. Balakrishnan, have joined the AAP in the past few days, improving its credibility. The campaign of Narendra Modi, the Bharatiya Janata Party’s (BJP) prime ministerial candidate, could hit a road bump due to the new party’s increased appeal.

Markets had been betting on a BJP-led government and are again getting worried about a fractured mandate. The first 100 days of the Delhi government would be crucial for the AAP to prove their administrative capabilities but unfortunately for them, this period before the general elections would also be critical to reach out to the electorate across the country.

Time to brace yourself for a hard landing

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

In his speech to parliament last week, Prime Minister Manmohan Singh said: “The depreciation of the rupee and rise in dollar prices of petroleum products will no doubt lead to some further upward pressure on prices. The Reserve Bank of India will therefore continue to focus on bringing down inflation.”

By saying this, the economist in Singh seems to have won against the politician. This has also been a vindication of sorts for outgoing RBI Governor Duvvuri Subbarao.

No quick fixes to India’s growth problems

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Over the past year, the government has silenced its critics with several pro-reform policy initiatives including the relaxation of FDI norms, freeing FII debt investment limits and a calibrated deregulation of petroleum prices. These reforms were cheered by the markets by way of increased FII inflows.

India’s widening twin deficits – fiscal and trade – appeared to have been reined in. But in the first few months of the fiscal year 2013-14, everything seems to have come undone for India – be it the potential end of the U.S. Federal Reserve’s quantitative easing policy or the dollar’s appreciation against emerging market currencies.

When will the rupee stabilize?

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The rupee hit a series of record lows in August, rattling the stock market and forcing policymakers to step in. But the fall was necessary to correct India’s past mistakes and improve the dynamics of the economy. Stock markets were jolted because the rupee’s slide was sudden. But then that is how markets behave.

International markets, be it for currencies or commodities, are sensitive and therefore volatile due to underlying speculation that is difficult to control. Eventually, however, a stable point is reached at which point they settle down.

Why India slowed

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This piece comes from Project Syndicate. The opinions expressed are the author’s own

For a country as poor as India, growth should be what Americans call a “no-brainer.” It is largely a matter of providing public goods: decent governance, security of life and property, and basic infrastructure like roads, bridges, ports, and power plants, as well as access to education and basic health care.

Bear market a golden opportunity to shore up coffers

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The recent run of the gold bears in financial markets has been positive for India’s current account balance. If this continues along with the persistent softness of oil prices, as many expect at least for the short term, it just might give the government the opportunity it needs to implement certain measures that have so far run against popular sentiment.

The plunge in the gold price since the start of the year, triggered by speculation and hints that the U.S. Federal Reserve may trim its bond-buying program sooner than markets had assumed, has helped the rupee hold up well against the dollar. This is good for India’s fiscal house, where the trade and current account deficits are more or less permanent fixtures.

Pitfalls of the food security bill

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The food security bill will be introduced in the current budget session of parliament, more because of its populist appeal than any economic urgency. Even when the bill was discussed by the Cabinet, Finance Minister P. Chidambaram and Agriculture Minister Sharad Pawar reportedly had reservations. They had valid reasons.

Subsidized food distribution is nothing new. Already 400 million people avail of it from over 500,000 fair price shops. What the bill intends is to widen the scope of the present scheme and cover two-thirds of the population with five kg of grain per beneficiary at nominal rates.

Why FIIs are dumping India

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Indian stock market is in a tizzy as foreign institutional investors (FIIs) seem to have pressed the sale button. Securities and Exchange Board of India (SEBI) data shows that while there was a considerable slowdown in FII inflow in March, we are seeing an outflow in April.

While net FII inflow in the equity markets remained above $4 billion for each month between December 2012 and February 2013, the net inflow for March was reduced to $1.68 billion. The trend reversed and during April 3-10, there was a net outflow every day, with cumulative outflow of $269 million during this period.

Investment boost needed to break India’s vicious cycle

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(Any opinions expressed here are those of the author and not necessarily of Reuters)

The current account balance reported last month hammered in the fact that India is spending more than it saves. While it had been stubbornly in the red for all but a couple of years in the last two decades, reaching a record deficit in both absolute terms and in relation to the gross domestic product was sobering.

The stock market’s delayed response to Budget 2013

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(Any opinions expressed here are those of the author and not of Reuters)

Finance Minister P. Chidambaram tried to humour the market in his budget by cutting the Securities Transaction Tax (STT) which had been one of its sore points. But the market was not amused. The Sensex continued to slide, indifferent to the budget which was presented with a lot of expectations.

This appears to be rather strange because the budget was well received by the industry, in spite of the increase in surcharge from 5 to 10 percent. It was possibly the realization that the finance minister lived up to his promise of cutting fiscal deficit to 4.8 percent which created an infectious confidence in growth revival.

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