Ten years ago, Goldman Sachs' Jim O'Neill coined the term Bric to club the fastest growing emerging markets. Through these 10 years, about $70 billion poured into these four economies from portfolio investors around the world, stocks shot up and the economies boomed.Today, Goldman Sachs believes that the best could be over for the Bric countries. That can be debated, but what's for sure is that $15 billion of portfolio money has flowed out of the Bric economies this year.
Officially, India's market regulator says that a paltry $500 million has flowed out of India's markets, but some analysts believe that the number could be as high as $3 billion.
Meanwhile, growth is slowing: the government still believes that it can end the fiscal year, which ends on March 31 with growth of around 7.5%, but others peg it lower. Though food inflation has dropped sharply, prices are still stubbornly high.
Interest rates are hard, and few expect the Reserve Bank of India to start cutting rates dramatically to spur growth. So, interest-sensitive sectors, where people borrow for big ticket purchases, are sputtering. Car sales are slowing and the property market is in deep freeze.
A part of the blame for all this, of course, goes beyond India's borders. Governments in the West have pumped huge amounts of money into their countries to prop up growth: much of that has settled in commodity and equity markets worldwide and pushed up prices.
Oil, for example, remains stubbornly high even as demand has stagnated. In oil markets, speculative trading is at a peak: the volume of oil-related derivatives is now an eye-popping 20 times the actual volume of oil that is traded.
India, like China, is a big importer of crude and high oil prices translate into either higher costs or a widening hole in oil companies' bottomlines. This year, unfortunately, saw both happen, as the government half-heartedly raised fuel prices sometimes and held off at others.
Almost all other commodities, from copper to soybeans, have also seen prices rise. Much of these filter through as higher inflation in India.
High inflation and high interest rates have acted like a pincer on consumers. Not only does it cost more to borrow, things also get dearer on shop shelves. In 2007-08, India's consumption as a percentage of GDP peaked at 9.3%. By last year, it had dropped to 8% of GDP and Citi expects this year to end with the number at 6.5% of GDP.
But there's hope on this front. The last few years, aided by programmes such as the National Rural Employment Guarantee Scheme, wages have risen sharply in rural India, and sectors that target the non-metro buyer could do well in the medium term.
The big worry is investment, which made up a huge 39% of the economy in 2007-08. This number could fall to 36%, reckons Citi. Part of that squeeze is due to higher interest rates. But a lot of the fall in investment can be attributed to the fog of uncertainty that the country is surrounded in.
This fog originated around August 2010, two months before the Commonwealth Games were to start in New Delhi and allegations of graft, centred around this huge project circulated in media. That stink has only got worse, with a four-year old allocation of telecom licences being labeled as the 2G scam.
(Source- http://economictimes.indiatimes.com/)
Officially, India's market regulator says that a paltry $500 million has flowed out of India's markets, but some analysts believe that the number could be as high as $3 billion.
Meanwhile, growth is slowing: the government still believes that it can end the fiscal year, which ends on March 31 with growth of around 7.5%, but others peg it lower. Though food inflation has dropped sharply, prices are still stubbornly high.
Interest rates are hard, and few expect the Reserve Bank of India to start cutting rates dramatically to spur growth. So, interest-sensitive sectors, where people borrow for big ticket purchases, are sputtering. Car sales are slowing and the property market is in deep freeze.
A part of the blame for all this, of course, goes beyond India's borders. Governments in the West have pumped huge amounts of money into their countries to prop up growth: much of that has settled in commodity and equity markets worldwide and pushed up prices.
Oil, for example, remains stubbornly high even as demand has stagnated. In oil markets, speculative trading is at a peak: the volume of oil-related derivatives is now an eye-popping 20 times the actual volume of oil that is traded.
India, like China, is a big importer of crude and high oil prices translate into either higher costs or a widening hole in oil companies' bottomlines. This year, unfortunately, saw both happen, as the government half-heartedly raised fuel prices sometimes and held off at others.
Almost all other commodities, from copper to soybeans, have also seen prices rise. Much of these filter through as higher inflation in India.
High inflation and high interest rates have acted like a pincer on consumers. Not only does it cost more to borrow, things also get dearer on shop shelves. In 2007-08, India's consumption as a percentage of GDP peaked at 9.3%. By last year, it had dropped to 8% of GDP and Citi expects this year to end with the number at 6.5% of GDP.
But there's hope on this front. The last few years, aided by programmes such as the National Rural Employment Guarantee Scheme, wages have risen sharply in rural India, and sectors that target the non-metro buyer could do well in the medium term.
The big worry is investment, which made up a huge 39% of the economy in 2007-08. This number could fall to 36%, reckons Citi. Part of that squeeze is due to higher interest rates. But a lot of the fall in investment can be attributed to the fog of uncertainty that the country is surrounded in.
This fog originated around August 2010, two months before the Commonwealth Games were to start in New Delhi and allegations of graft, centred around this huge project circulated in media. That stink has only got worse, with a four-year old allocation of telecom licences being labeled as the 2G scam.
(Source- http://economictimes.indiatimes.com/)
No comments:
Post a Comment