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RBI better than the US Fed

Apr 16, 2009

RBI understands banking better
Compliments continue to pour in for the RBI, India's central bank. And now, one more celebrity economist has joined the growing list of admirers. Nobel Laureate Joseph Stiglitz believes that the RBI's resistance to the deregulation of India's banking sector despite immense political pressure is the reason why the country's financial institutions have stood like a rock of Gibraltar at a time when their counterparts in US and Europe are falling like nine pins. Not only this, he also went on to add that the Indian central bank understands central banking and regulation much better than the US Fed.On the economic growth front however, he refused to believe that countries like India and China would continue to grow at the stellar rates they did in the recent past. Economies of these countries, according to Mr. Stiglitz, are far from being decoupled and whatever happens in the US is also likely to have repercussions on these economies. Although India might still grow, but its growth rate will be a fair bit lower owing to the crisis in the US, is how the articulate economist chose to put it across. Indeed. After logging in growth rates in the region of 9% in the past few years, India's economy is expected to have slowed down to 7% in FY09, driven by weakness in exports and shortage of capital.

Bulls on a tear
Most Asian indices are trading in the positive currently, lifting the regional benchmark index to a 3-month high as per Bloomberg. A fantastic achievement for an index that little over a month back was staring down the barrel. Back home in India as well, the rise in the benchmark indices has been nothing short of extraordinary, shocking fund managers and analysts alike. As per a leading daily, in the past five weeks, while the US markets have risen 21% and Japanese markets 23%, Indian stock markets have seen a surge of 38%.

This phenomenal rise has been led by both FII buying as well domestic institutional buying. While FIIs have pumped in more than US$ 1 bn into India in the past five weeks, domestic institutions have also bought Indian stocks worth US$ 500 m during the same period.

But is this rally sustainable? There are indeed near term concerns, the most potent being the outcome of the elections, but over a long term period, this could perhaps be the best time to invest in fundamentally sound companies run by honest and competent management. Waiting for the markets to fall could lead to missing out on another rally. Just ask those who were waiting in the sidelines when the current rally began!

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