Niveshak October 2011 Issue

Sunday, October 30, 2011 , Posted by Team Niveshak at Sunday, October 30, 2011

Dear Niveshaks,

The current financial crisis has illustrated how the world markets have moved closer to each other and have become so interconnected that every move in every economy is now being catapulted to the global arena. Every piece of information is being analysed for signs of economic conditions. In fact, if we go by what is being written in press, right from high inflation, dismal growth numbers, hiring freeze and poor earning guidance by corporates, we can fall into a false sense of belief that our economy is already in midst of a recession. The Indian economy today is seen as so interconnected and dependent on the western economy that any problem in the western economy is automatically seen as trouble for the Indian economy as well.

However, if we analyse the situation carefully, the Indian economy is surely slowing down, but is not in the same mess as developed economies. The Reserve Bank of India has forecast a GDP growth rate of 7.7 per cent in FY 2011 while the UNCTAD has pegged the figure a shade lower at 7.6 per cent and the broad consensus among most economists is that it is unlikely to be lower than 7 per cent. Four years ago, if anyone had said the country would grow at 7 per cent, we would have taken it with glee, but three years of 9 per cent growth and talk of touching double-digit expansion had spoilt us. The fact of the matter, that Indian growth story is still intact and what we are seeing now is probably only a temporary phenomenon. The inflation rate is declining; overall domestic demand is growing, though not at the feverish pace of the last five years and jobs are being created, albeit at a slower pace than before though cost pressures have increased. Under the circumstances, the mood of despondency that has set in is unwarranted.

The currency space around us is on the verge of major transformation. The last time something big happened in currency space was in 1971, when the gold standard was abandoned by the then US President Richard Nixon. The move resulted in huge trade imbalances and a massive build-up of foreign currency reserves by countries like China. Something big is all set to happen again in the currency space with the new proposed currency bill by US. The bill is essentially a form of trade protectionism that intends to penalize China for keeping its currency at artificially low levels to boost its exports. The bill not only in violates a series WTO rules, but would also potentially dampen the global economic activity and increase the probability of a double dip recession.

This issue brings to you some more interesting and insightful topics. The cover story this month focuses on the Occupy Wall Street Protest and its implications for the US as well as global economy. The issue also features an article on the Private Equity Industry in India and the road ahead for it. Other articles in this issue focus on infrastructure financing and entry of private players in the Indian banking sector. The Classroom this month explains various types of Fixed Income Securities. We would like to thank all those who have contributed articles to this issue and sent entries for Fin Q.

Hope you find this issue an interesting read.

Stay invested.

Rajat Sethia

(Editor -Niveshak)

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