Bears return as FIIs shun Indian markets
MUMBAI: The two-year investor ecstasy over Indias macroeconomic growth is slowly giving way to agonising cries over inflation and interest rates, reviving memories of the 2008 savage collapse in equities that wiped out many investors.
As the noise on soaring cost of funds and increasing commodity and crude oil prices gets louder, analysts are preparing to cut corporate earnings estimates for the first time in nearly two years. This could pressure stock prices that are already at a premium to emerging market peers.
Two years of excesses with stimul US , topped with natures furyone year of the worst drought in three decades, the next of unseasonal rainsare triggering concerns among investors that macroeconomic health may deteriorate.
Foreign investments in India are poised to slow from the record $29 billion in 2009 as overseas investors prepare to benefit from safer developed markets, with demand reviving in the US, including corporate action in the form of takeovers.
``The current situation looks similar to that in 2008, when inflation had to be contained by raising interest rates, said V Anantha Nageswaran, Chief Investment Officer of Bank Julius Baer. ``This risk is real and we suspect the repeat of a similar situation.
Indian benchmarks have underperformed major developed and emerging markets since the macro situation turned shaky in the past few months. Suddenly, investors are worried about soaring prices that could force a reluctant Reserve Bank of India to resume raising rates after doing so six times last year.
The currency looks wobbly as imports far outstrip exports, threatening to take the current account deficit ratio to 1991 crisis levels, a contrast to Chinas. Fiscal deficit, forecast at 5.5% in 2010-11, may not come under contr! ol next year as the Centre is tempted to spend more on welfare schemes with an eye on state elections. And, with about two months to go, the privatisation target of Rs 40,000 crore remains just half achieved.
Macro concerns regarding inflation, fiscal and current account deficits, and potential earnings disappointments could lead to significant multiple compression from the current levels, which we see as elevated, Parul Saini of Royal Bank of Scotland says.
The benchmark Sensex is down 5.7% since November when the US S&P 500 rose 7.2% and the MSCI world index gained 4.3%. The MSCI Emerging Markets is up 1.4%. India remains the most expensive among Bric nations, a moniker for the uniquely fast-growing Brazil, Russia, China and India.
As the noise on soaring cost of funds and increasing commodity and crude oil prices gets louder, analysts are preparing to cut corporate earnings estimates for the first time in nearly two years. This could pressure stock prices that are already at a premium to emerging market peers.
Two years of excesses with stimul US , topped with natures furyone year of the worst drought in three decades, the next of unseasonal rainsare triggering concerns among investors that macroeconomic health may deteriorate.
Foreign investments in India are poised to slow from the record $29 billion in 2009 as overseas investors prepare to benefit from safer developed markets, with demand reviving in the US, including corporate action in the form of takeovers.
``The current situation looks similar to that in 2008, when inflation had to be contained by raising interest rates, said V Anantha Nageswaran, Chief Investment Officer of Bank Julius Baer. ``This risk is real and we suspect the repeat of a similar situation.
Indian benchmarks have underperformed major developed and emerging markets since the macro situation turned shaky in the past few months. Suddenly, investors are worried about soaring prices that could force a reluctant Reserve Bank of India to resume raising rates after doing so six times last year.
The currency looks wobbly as imports far outstrip exports, threatening to take the current account deficit ratio to 1991 crisis levels, a contrast to Chinas. Fiscal deficit, forecast at 5.5% in 2010-11, may not come under contr! ol next year as the Centre is tempted to spend more on welfare schemes with an eye on state elections. And, with about two months to go, the privatisation target of Rs 40,000 crore remains just half achieved.
Macro concerns regarding inflation, fiscal and current account deficits, and potential earnings disappointments could lead to significant multiple compression from the current levels, which we see as elevated, Parul Saini of Royal Bank of Scotland says.
The benchmark Sensex is down 5.7% since November when the US S&P 500 rose 7.2% and the MSCI world index gained 4.3%. The MSCI Emerging Markets is up 1.4%. India remains the most expensive among Bric nations, a moniker for the uniquely fast-growing Brazil, Russia, China and India.
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