In an ironical twist , global cues ( leaving out the latest Japanese stimulus ) have begun to worsen precisely when prospects for ground-up reforms have brightened in India . Much of first four months of the new Govt. had passed in high decibel rhetoric , though it was a refreshing change from the sulking silence of the previous Govt. . As much it was required for initial sentiment boosting , carried too far , it would have tired even the most vocal supporters of this government . Much to the relief of many such hopefuls , Govt. got into action quickly after the state polls without losing too much time . Diesel deregulation , Labor reforms , Gas price finalization , Coal Ordinance ( privatization of coal mining ) , Easing of foreign investment in construction sector and broad-basing direct benefit transfer for LPG are some of the key measures unveiled by the Govt. to boost its reformist credentials . Coming on the back of worsening global macro , these measures assume significance for India to stand out in this global turbulence.

Up in the sky , dark clouds have gathered over global macro . Slowing China , fears of recession in Europe , volatile data points from US , cracking Crude , Fed fears ( of interest rate hikes) etc. have cast a spell in global markets . Falling US treasury yields and rising dollar index reflect rising worries on global growth . US treasuries have firmed up in the last few weeks ( as a result yields have fallen as much) . There is a worrying wobble across equity markets. Most of the emerging market equities are sharply down . Ride has been even more rocky for EM ( emerging markets) currencies . Much of the EM currencies are down by over 10-11%+ . Even equities in mature markets are down over 5% over last two weeks . Amid this global turbulence , it is heads-up for India . In a rare instance of resilience , Indian equities as well Rupee have remarkably withstood the global heat .

Much of the credit for this rare moment should go to India’s growing “political currency” after stunning election results that brought a stronger and stable governance to the country . Strong flows into debt markets even amid global turmoil in a way reflect growing confidence on the Indian political administration . Besides , India is blessed uniquely to gain from the worsening global macro via sharply lower commodity prices and thereby boosting its prospects for lower import bill and for sharply lower subsidies . Sharp fall in global oil prices ( near 25% crack) has come as a boon to India . Every 10$ fall in oil prices has the potential to shave off near 50 bps from both WPI inflation and from current account deficit . That is the significance of falling oil for India macro. This coupled with stronger growth outlook on rising domestic consumption have the potential to put India as a shining spot on a weakening global map . It can sparkle as the silver-line in the darkening clouds.

From this backdrop , any correction in Indian markets will be a great opportunity for investors to build new positions . As many global investor concur now , India Story is back with a renewed vigor now and is here to stay . If shuffling of secretaries in Finance Ministry and the appointment of new Economic Advisor are anything to go by , the signs are clear that the coming budget will build the foundation for structural reforms . Any correction should be seen as a golden opportunity from this perspective .Watch out for interesting times .

ArunaGiri . N

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s