We are in a lean phase and it has been announced world wide and effect of the same can be seen in our equity market during the last month or two or nearly a year from now and the series of events are showing that investment climate in India is certainly not in favor of in the eyes of FIIS and other investing fraternity. The 4 prominent factors affecting the India economy are as following:
Scam Ridden Government: The damage has long been done, but recent flip-flop on FDI in pension funds, Insurance, Retail and power tariff revisions recommend that the terrible news is not about to come to an end. The India’s largest State Uttar Pradesh and West bengal is making the Prime Minister Manmohan Singh nervous and thus he is not able to go for any firm decision. Now add to it the FDI crisis in India which will add fuel to fire.
Fiscal deficit: The fiscal deficit is putting pressure on long bond yields, which in turn adversely affects equity multiples. A worldwide crisis might lead to the fiscal deficit to rise. This might mean that yields may stay higher for longer period with negative implications for equities.
Inflation: RBI has contracted its balance sheet and, because of the decline in seasonally adjusted inflation, we perceive that RBI is ready to alter policy direction by using the liquidity injection, CRR cuts and rate cuts path across the coming months. Any excessive monetary easing in Europe and even the US to push their economies may very well push the Commodity Prices higher thus putting pressure on Inflation again. Unrest in the Middle East has got the chance to create pain further in equity market via higher oil prices.
Current Account Deficit: It poses an issue to take care of balance EXIM Trade as data implies that from 2008/09 while Indian earnings outperformed the entire world, its equity markets significantly underperformed for this very reason.
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