|»5 Minute Wrap Up by Equitymaster|
On This Day - 13 JULY 2010
Should Indian markets be worried about more shocks?
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But this has also brought its own share of problems. The environment in the developed world is not very encouraging. Europe and Japan are saddled with huge debt and are still coming to grips with it. The US is also hobbling along. As a result, there is very little investment appetite in these economies. And so, all that money is still flowing into faster growing Asian economies including India. Little wonder then that the IMF has asked Asian economies to be prepared for further shocks. This is keeping in mind that surging capital inflows and asset bubbles pose significant challenges for the government in its policymaking.
The RBI in the last one year has also been grappling with the problem of excess liquidity fueled by FIIs bringing in truckloads of money. Stock prices also moved up considerably in the past one year. This has pushed up valuations of many stocks. The RBI since then has clearly signaled tightening of its monetary policy. Although no significant announcements have been made with respect to imposing capital controls.
The good news is that there are no bubbles forming yet in the Indian markets. In that sense, any further negative developments in Europe may actually be a boon in disguise. Because given the interconnectedness with the global markets, stock prices in India will then come down. And provide investors that perfect opportunity to pick up some quality stocks at a bargain.
The shortfall has been attributed to poor private sector participation. And why not? When projects in India have a track record of facing monumental delays, investors are bound to look the other way. But now a solution has been found to this problem. It is in the form of infrastructure debt funds. These debt funds will buy loans from banks for projects that have completed construction and entered into commercial operation. This would then free up some of the banking system's capital so that the same could be channeled into projects at an earlier stage of completion. Such a move indeed makes sense. This could enable a lot of private investors to play ball as their risk now stands reduced considerably. Thus, the future of India's infrastructure projects now hinges upon the capital that such infrastructure debt funds are able to attract.
The IT sector has been witnessing pressures on their billing rates due to the global financial crisis. This combined with wage hikes and an appreciating rupee has added to the woes of the IT companies in the recent past. However, with a recovery in IT spending by companies, demand is expected to go up in the coming months. This is expected to offset the negative news and improve margins.
Thus, it doesn't come as a surprise when a leading daily proclaims that the trend of civil servants hanging their boots of public service and donning the new garb of a corporate executive is increasing by the day. There are some who term these sorts of guys as lobbyists. However, for people who have already made the switch, the term comes across as rather derogatory.
We believe that the success of such trends should be viewed from the point of view of reforms. Since a civil servant is well versed with the limitations that the Government works with and is also aware of its checks and balances, he can help speed up reforms by helping companies understand the Government's point of view and also the other way round. But sadly, such reforms have been few and far between.
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