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Forecasters turn gloomy on India

May 15, 2009

Based on the results of a survey of professional forecasters as carried by the RBI on its website, India's GDP is expected to grow at an annual rate of 7% and 7.5% over the next 5 and 10 years respectively. We have always believed these growth numbers (7-7.5%) to be appropriate for an economy like India, even when all other experts were talking about a 10% annual growth! Anyways, the forecasters have also projected inflation (based on the wholesale price index or WPI) to average around 5% and 4.5% over the next 5 and 10 years respectively (WPI inflation currently stands at 0.48%). The current 10-year forecast for GDP growth is interestingly lower than the 8.8% levels that these very forecasters had predicted just around three months back, and is possibly a measure of how the current economic scenario might have clouded these long term forecasts. Political uncertainty hurts Indian stocks
Asian markets have opened today on a strong note, as gains are seen in the benchmark indices of Hong Kong (up 1.8%), Japan (1.7%) and Singapore (1.6%). These gains come after four straight days of decline in these markets, which was the longest stretch of losses since January. Experts see this as an 'overdue correction' that was much needed, given that stocks had moved up too fast since March without much consideration to the worsening global economic scenario.

As far as Indian markets are concerned, which the benchmark BSE-Sensex is up around 46% since its lows of March, the index has dropped around 3% over the past one week owing to political uncertainty before the announcement of the election results this Saturday (May 16th). The uncertainty has been aggravated following the exit poll results which indicate that no major political party (Congress or BJP) will win enough votes to form the next government at the Centre. Whatever the case may be, we, like you, hope for stability in governance once the next government comes to power. In any other case, the country suffers on account of a greater political uncertainty till the next elections are held (in 18 months, as some astrologers have predicted).

Which way will the oil flow?
There are mixed opinions on whether the recent rally in crude oil prices is sustainable. On one hand, there are early signs of recovery in demand. For example, crude oil imports by China grew by 14% YoY in April, for the first time this year. On the other hand, the International Energy Agency reports that inventory level in the major oil consuming countries is the highest in 2 decades. In fact, it predicts that global demand for oil this year will be around 83 m barrels a day - a contraction of 2.6 m barrels, the biggest in 30 years.

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