Tuesday, April 29, 2008

The Sub Prime Factor

The sub prime crisis in the United States resulted in an outflow of funds to India pushing up the stock market indices in India and resulted in a bull run with the Sensex shooting upto unprecedented levels, 20k if i am right. This was towards the later part of 2007. The Reliance IPO happened which a huge success and this resulted in a lot of investments being tied up there. A lot of investors and specuators had their money locked up and had to sell other equities to make good on earlier commitments. This resulted in a slump in mid to late January 2008.
Now its the slowdown in the global economy that is everyone's worry. Petrol/Oil has crossed and gone much beyond the Us$100 a barrel, commodities too are at an all time high (due to food stock being diverted to bio fuels according to some people) and in India inflation is spiralling to 8 % and above, though at the time of writing it is at 7%. The RBI will curtail supply of currency by hiking the CRR and through other means which could mean a hike in interest rates. While the rupee appreciated vis a vis the dollar during the sensex bull run, it will come down due to the hike in oil rates and the higher import bill if food is imported. While the appreciating rupee will have hit the IT sector and other labour intensive export industries, there will be relief since the rupee will stabilise against the dollar with the inflation and import of foodstuff and oil.
But the scenario in India is not all that bullish as things stand.

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