Tag: Jim O Neill

India Morning Report (July 05, 2012) : Risk on trade continues, yet a stalemate

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Of course no one’s fighting to take the Nifty down now but some are waiting if they can buyin again at lower levels an oft repeated strain since August 2011

However the correction though not perfectly correlated will depend on the weakening in the rupee as it becomes another export dependent economy without consumption growth as in Brazil, Australia China and Russia. Not to confuse the bulls, wea re still doing well, PMI at 55 and Services Indices at 54.3 athe best showing globally currently and a 5% growth guarantee at this bottom means India’s premium is justified and riskakers would be growin gIndi’s share . As BRICS follower Jim O Neill and now Goldman Sachs aver, the BRIC markets are at a 33% discount to their share of world GDP of 25% in their share of investment trades in Equities at 16% so the immediate opportunity in those which have steadied the tide in an environment of uncertainity, will get  alarger benefit of the global liquidity injections.

Ofcourse, India participation by FIIs remains capped and Policy decisions continue to teak within India’s share literally capped at 5% in the Global Indices

Acorrection is unlikely as Consolidation has held, and the investors must be patient. The Rupee may let the Dollar recover durin gthe day today as emerging currencies broke their 4 day run yesterday

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India’s economic contradictions show up, infra investment remains slow

Equities trading near lows, derivatives including the PCR has moved on to a low 1.05 showing that the down move in equities will be limited. However after Friday’s trading at 8.55% yields are already further down to 8.47% very encouraging to the RBI Governor to begin rate cuts in earnest  and there in lies another potential breakpoint for the market after policy announcement on Friday as rate cuts are unlikely to play into the Indian story for another 4-5 months., inflation drops well in progress otherwise.

Moodys’ and goldman Sachs ( Jim O Neill) have already sounded dire Forex payments warnings  with retail FDI having counted as negative. India’s fixed income exposure outside continues to look healthy with recent outward and inward transactions of sizable value completed per expectations so we stil have time to repair our outlook.

Apart from revisiting retail FDI , whence the six months figure of $20 bln in FDI could move faster in the

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remaining fiscal, we also need to get our power sector investments going again. 2012 will be better for Fixed Capital formation as the new 5 year plan makes fresh proposed investments in its first year and briniging the growth imperative back could bring back the same additionally.

Fortunately, India’s banks are sitting on good capital reserves to accelerate credit where it is in the right stage whether for outward FDI or domestic projects thru domestic and International/PE equity. Infra structure projects’ longer gestation from the various Bombay Metro projects to the Harbor Sea link (Sewri) to be bid by Mukesh ambani and investors’ rejection of the same show the challenge ahead of us in investments in infrastructure as both fixed income markets and equities need to vcover short term returns to recover their higher costs for the scarce capital. 30 year capital can come to projects from private players only if longer debt is assured of better financial infrastructure apparently,else funding India’s $2.5 tln infrastructure gap and thus maintaining the growth imperative was well within our reach in 2011

Negative Gross Fixed capital formation after a dull 8% growth in the June quarter has skewed India’s relationship witht he credit agencies. It’s uneven relationship and the last minute slowdown when China is steadying ships is a confusing signal for the market watchers.

Unfortunately RBI cannot do much more right now except sing paeans to the success of inflation being in control

We are not alone in the slowdown nor we ever had any reason for our equity markets to be so optimistic in the last six months, but somehow we missed our growth imperative in 2010 and 2011 before being caught inthe slowdown, looking at the fall now negating our previous accomplishments rather than allowing us a wait and watch period.

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