Dear Niveshaks,

Despite the series of low-probability, high-impact events that have hit the global economy in 2011, financial markets continued to rise happily until a month or so ago. The year began with rising food, oil, and commodity prices, giving rise to high inflation. Then massive turmoil erupted in the Middle East, further increasing the oil prices. Then came Japan's terrible earthquake, which severely damaged both its economy and global supply chains. And then Greece, Ireland, and Portugal lost access to credit markets, requiring bailout packages from the International Monetary Fund and the European Union. Lately, concerns about America's unsustainable fiscal deficits have, likewise, resulted in ugly political infighting, almost leading to a government shutdown. A similar battle is now brewing about America's debt ceiling, which, if unresolved, introduces the risk of a technical default on U.S. public debt. Until recently, markets seemed to discount these shocks. Apart from a few days when panic about Japan or the Middle East caused a correction, they continued their upward march. But since the end of April, a more persistent correction in global equity markets has set in, driven by worries that economic growth in the United States and worldwide may be slowing sharply.

On the slow track, meanwhile, was India's economy. GDP grew by 8.5 per cent in 2010-11, still very good by global standards but lower than expected, and is seen slowing further to eight per cent in 2011-12. There is cause for caution - high oil prices, stubbornly high inflation, and high interest rates but also cause for optimism, with commodity prices likely to moderate, and inflation seen simmering down by the fourth quarter of 2011. Mid-June, RBI raised interest rates for the tenth time since March 2010 in order to control inflation, even as growth slows in Asia's third-largest economy. The repo rate now stands at 7.5 per cent. The rate increase follows on the heels of recent monetary policy tightening in China and Brazil, other big emerging economies that are battling high prices even as growth slows from last year's heady levels. Elevated inflation is expected to persist in coming months, and could be exacerbated because of the Government’s decision to raise the price of diesel and cooking fuels by Rs. 3 per litre and Rs. 50 per cylinder respectively, in order to ease its subsidy burden as global crude prices remain high.

This issue brings to you some more interesting and insightful topics. The cover story this month focuses on the gaga over the double dipped recession. Economic data from the United States, the United Kingdom, the periphery of the Eurozone, Japan, and even emerging-market economies are signalling that part of the global economy—especially advanced economies—may be stalling, if not dropping into a double-dip recession. The article of the month explores the issue of deregulation of diesel and LPG prices and the way forward for the Government. Another article in this issue focuses on the Euro Crisis and way the crisis needs to be handled going forward. The issue also features an article on the issue of Banking Licenses being given to NBFCs. Lastly, the Classroom this month explores the topic of Credit Rating.

Hope you find the issue an interesting read.

Stay invested.

Rajat Sethia