India is Not Alone: Global Slowdown Woes

Back in Delhi after an outstation trip, I must say the first two days of the week brought little surprise or cheer to me in terms of developments in the economy or the markets. Of course, it is easier on everybody’s nerves not to see the rupee fall the way it did last week. While driving back from work yesterday, I heard something interesting on a radio show reviewing the stockmarkets for the day. It said that the rating agency Moody’s doesn’t see its India rating change due to the fall in rupee (this is an old news though). The reason:  Since India’s political leadershop doesn’t look well-placed to bring about the much-needed adjustments in the fiscal space it thinks that the rupee’s correction accurately reflects the country’s realities. Coincidentally, this is a line I and my co-authors took last week when we wrote the latest cover story of Outlook Money magazine (www.outlookmoney.com). The issue hits the stand today. Hopefully, our readers will like the cover story and will find it useful.  The other disconcerting news coming in is the slowdown in China. Over the weekend, I read an interesting New York Times article on the slowdown there. The link is given here. http://www.nytimes.com/2012/05/25/business/global/chinas-once-hot-economy-is-turning-cold.html?pagewanted=all. Then, there is a video link from the Financial Times http://video.ft.com/v/1660792089001/China-faces-difficult-choices. The China real estate and construction scene always looked dicey to me. But now things should be worrying. The other interesting update I have managed to get is about the Brazilian economy. Apparently, in that country as well the authorities have tried to cool things down and they are now looking at a growth rate of about 4 per cent. Like India, it needs further reforms. A recent Economist articles argues on the same line. Here is a Wall Street Journal article link on demand for Brazilian debt http://online.wsj.com/article/SB10001424052702303395604577434412657454798.html?mod=rss_markets_main. Before I sign off, I need to say I thoroughly enjoyed reading the recent Economist survey on retail banking http://www.economist.com/node/21554742.

Markets' Weakness Ahead?

Talking about the future direction of stock markets is difficult yet tempting. At a radio show on Thursday, April 5 where I was invited as an expert, I was asked the same question by the host. It is quite clear that when markets open on Monday, April 9, 2012, a few things will be at play. The bad news from Europe will be working on investors' minds, especially foreign ones. Bar Germany, the news from Europe is  not great. It is quite clear that what the continent is going through is not "shallow recession" as some had suspected but something deeper. Spain's debt markets don't really believe that it's government can pull things off and maybe that's why the bond yields increased. It seems Portugal, one of the earliest, in the list of troubled European economies will need another cash transfusion later this year. Incidents like public suicides in Greece and Italy that happened last week will make things very difficult for lawmakers trying to take tough decisons. In short, no end of the Euro misery is in sight. Plus, Fed chairman Bernanke has ruled out another pumping of cash into the US economy that would have found its way into the global economy and thereby raised the prices of many assets be it stocks or commodities such as oil. My answer roughly moved around these two major factors. As I write this post, it seems that the latest US jobs data is not too flattering. This will add some more impact to the negative sentiment. It was suspected that US companies would be adjusting to the reality of tepid growth and not step up hiring. That seems to have come true. Add information of a slowdown in China and there is a lot of negatives at work. In India, the markets and the economy could have benefitted if something had been done to negate these effects by moving positively on some of the areas where supply constraints are making life hell. But the government doesn't seem to be getting any of its moves right be it ensuring coal supply to power plants to clarifying aspects of its recent tax avoidance proposals. Looks like any expectation from the government is too much. 

Why the Rupee Could Become Weaker and Impact on Everyone's Finances

Now that the third quarter current account deficit figures of 4.3 per cent of GDP is out a few things are clear to me. We will see a situation in the future where the gap between growth of imports and exports will continue to be yawning. You don't need to be an expert to know that the top items in our imports list are things that we can't do without. I am talking about petroleum and edible oils. With rising international oil prices being the single most important threat to the global economy, especially India, the import bill could go into orbit any moment whether it is tensions in areas such as Iran or another round of currency pumping by some central banks. In the past, the huge amount of cash pumped by central banks found its way to commodities such as crude oil, pushing up their prices. On the exports side, things don't look too great with global economy showing weakness. In the US, joblessness is on the decline but the rate of fall is not brisk enough. We know how things are in Europe and China is now talking about far lower rate of growth. The one thing that government could try and do was checking gold imports which it tried to do in the Budget. But then, jewellers had other ideas with their strike.
Given this situation, one can expect people to seek more dollars and than the rupee or the rupee's value to weaken. This in turn will only mean more inflationary pressures and more stubborn inflation. Less likely will be a cut in interest rates and greater impact on the bottomlines of companies impacting their stock prices. Of course, this will also impact the investments in equity mutual funds and growth funds of unit linked insurance plans (Ulips) this year. Clearly, it looks as if the new financial year of 2012-13 will be fairly challenging.