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On This Day - 3 JANUARY 2012
Will this latest Govt. move boost Indian stocks?
In this issue:
Thus, in 2011 too, money pulled out by FIIs had influenced the movement of the indices. But the story this time was a bit different. Certainly, the escalation of the crisis in Europe was one of the factors that added to the overall negative sentiment. But to put the blame entirely on that region would not be right. Problems back home in India also led to loss of confidence among investors. High inflation, interest rates, lower profits reported by India Inc., policy paralysis in government were some of the main issues that led to big outflows.
Hence, in order to cushion the volatility in Indian stock markets and also deepen its under-developed markets, India will allow foreign nationals to invest directly in the country's listed companies. Foreigners were previously restricted to investing in India's equity market through mutual funds or other institutional channels. Whether this will result in an immediate flow of foreign money into India remains to be seen though. Ultimately what matters is what steps the government is taking to bring in reforms and ramping up the infrastructure of the country. If the political deadlock continues the way it did in 2011, the chances of more investments in Indian markets, be it domestic or foreign, will be poor at best.
Do you think the government's latest move of allowing foreign investors to invest directly in India give the much needed boost to Indian stock markets? Share with us or post your comments on Facebook page / Google+ page.
In view of this, it is indeed worrisome that the RBI has revised its exports figure down by US$ 6 bn in its balance of payments statement for the first quarter of FY12. It should be noted that a similar move was made by the commerce ministry earlier when it had too admitted to overstating certain export numbers by US$ 9 bn. We sincerely think that the data collection agencies better get their math right with respect to such numbers. A lot of future capital allocation decisions by firms and individuals are arrived at after poring through data provided by these agencies. Thus, if these are error prone, the decisions that depend on them may also turn out to be wrong and cause damage to the economy.
In fact, the liquidity, more often than not helps the government fulfill its politically motivated social obligations rather than meet economic interests. In the event of the government exceeding borrowing limits, the private borrowers are getting crowded out. More so because the government's borrowing rates influence interest rates in the economy as well. We hope that the central bank puts its feet down on this account as well. Only then will the RBI prove itself truly independent.
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