X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
US flu, hot crude & more... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 14, 2008

    US flu, hot crude & more...

    • At the first signs of the credit problems in the US and Europe six to eight months ago, it appeared that the trend might not affect India's financial markets and real economy significantly. However, things have changed rapidly wherein a slowdown in FII inflows, private equity inflows and real estate investments, coupled with slowdown in earnings growth, have begun to weigh heavily on India's growth outlook.

      The reason why India seems to be dangerously exposed to catching the contagious US flu is because our economy runs a large current account deficit, and its large balance of payments surplus has so far been driven by capital inflows. On the contrary, most other countries in Asia have large current account surpluses. Second, India has had a strong credit cycle over the last four years, driven by surplus liquidity, thus pushing up domestic demand. India's credit growth has averaged 29% over the last three years. While the monetary policies seem to have done their duties, the loose fiscal policies (camouflaging off-budget liabilities) have been blatantly ignored.

      The revelation of exposure to subprime risks by some Indian banks has raised doubts with regard to regulation and supervision over banks as well. Hence, currently there appear to be simultaneous challenges from several angles to the conduct of monetary policy, emanating from recent financial turbulence. These also relate to abrupt and large shifts in monetary policy measures of the major economies (particularly the US), major realignments in exchange rates (again, particularly the US dollar vis-a-vis Indian rupee) within a short period and unprecedented inflationary pressures due to food and energy prices. These warrant some interaction between the government and the financial sector, which may be influenced not only by the growing importance of financial discipline but also the cross-border linkages in the financial flows.


    • The spike in crude oil prices over the last couple of months has been largely attributed to speculation attracted by the weak US dollar. This argument is also supported by the fact that the rise in crude prices is not due to the market's underlying fundamentals, as the supplies are generally rising while demand is falling. Further, conflict between the major oil producing nations have not helped matters either. The potential conflict involving Venezuela, an OPEC (Organisation of the Petroleum Exporting Countries) member and major oil supplier to the US, pushed oil prices higher last week. Nonetheless, the end consumers in India remain largely oblivious to the steep energy burden as the artificially low prices of petroleum products (that are subsidised) fail to provide the price signals that can reduce demand. This again calls for some fiscal prudence on the part of the government.


    • China's trade surplus plunged in February 2008 as sales of goods to the US and Europe weakened. The situation was further aggravated by the snowstorms that disrupted the economy. The 63% YoY drop in trade surplus has been partly due to a global slowdown as also due to lower industrial production. China's industrial production grew at the slowest pace in more than a year as exports cooled and the worst snowstorms in half a century closed factories and disrupted power supplies. China's imports in February surged 35% YoY while the exports grew by 6.5% YoY - a much slower rate than January's 26%. That also spurred worries that slowing US demand will hurt Chinese exporters and could wipe out thousands of jobs.

      However, the Chinese government has a different story to narrate. Chinese leaders say they are not actively pursuing a large trade surplus. The communist government is prodding China's consumers to spend more in hopes of reducing reliance on exports and industrial investment to drive growth.

      The People's Bank of China (China's central bank) has already lifted borrowing costs six times in 2007 and has pushed banks' reserve (CRR) requirements to 15%, the highest ever. China has also let the Yuan appreciate more quickly to reduce import costs. The currency has climbed 2.9% in 2008 (year to date) versus the dollar after a 7% gain in 2007.

     

     

    Equitymaster requests your view! Post a comment on "US flu, hot crude & more...". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 (Close)

    MARKET STATS