Here is a nice article on the sub-prime crisis and its side effects on India. I agree with the first part of analysis about the causes for the sub-prime crisis - the low interest rates spurring the growth;
However, I disagree with the fact that in the near short term the asset prices in India would be coming down. In the long run, I see that the Indian economy getting affected because of the rupee appreciation, but not in the short term.
The Hindu Business Line : Sub-prime and side effects:
The reason why I believe the asset prices in India in short term woudl go up is because the relative return on investment is higher in India than in US, particularly after the Fed rate interest rate cut, So, those in US would prefer to invest in India than in US and get higher return. Therefore, in the short term the stock markets are definitely going to shoot up!
However, in the long run, the currency appreciation is going to be an issue and if the spending of Americans comes down, the investment of companies also comes down and thereby our exports fall down. But we are not in as bad a shape as countries like Korea were and are today, as we are big consumers ourselves.
Saturday, September 29, 2007
Sub-prime Crisis and side effects
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3 comments:
SPC had triggered a risk repricing and the FED cut was to tackle the same and to bring liquidity into the system. However, with major inflows into the system, the rupee will appreciate further putting further pressure on the margins of Indian IT/export oriented companies. The thing that keeps me worried though, about self-consumerism is that it is spearheaded by the IT folks. If they stop spending, we might to take a double look on the Indian consumerism story.
The stock market touched 18000 already - it looks like the indian's optimism is based on pure lethargy.
Hi Kopos,
I agree with the first point that you said. That was what the article was trying to elucidate. But I do not completely agree with your second poing - self-consumerism spearheaded by IT folks. I agree that people in IT are the major spenders, but they are not teh only big spenders. With manufacturing increasing in India and non-IT services increasing their already established presence, we will see the spending coming in from Indian cnosumers.
Also, the stock market going up is not based on lethargy, but based on FDI inflows - who find India an attractive place to invest given the low rates of return in US. But we need to be careful not to let our stock markets inflate and become a bubble that would burst soon!
India and big spenders??? I doubt how we can even scale up to the western peoples spending?
Though we may not like it, our markets everywhere are tightly tied to the Western markets. To talk about even our IT... just realize how much the IT market is dependant on "Exports" and how much on domestic market.
And consumerism wise, we dont even come anywhere near the US. Just see how much a nation of 220 million spends and how much a nation of 1 billion spends.
Just concentrating on the metros for spending might send the wrong signals.
Manufacturing increasing in India is a joke. Just read the papers and see that the worst affected sector because of rupee appreciation was textiles... lots of textile industries in Tamil Nadu got closed down because of the rupee appreciation.
We may not be seeing the immediate affects on the stock markets... but if this SPC is going to stay... it will sure show on the Indian markets.
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