The major reforms announced by the US Federal Reserve as well as the Indian government and their timing and manner of announcements guarantee to boost the Indian economy and market sentiments at large. The US Federal Re-serve’s third round of quantitative easing (QE3) helped to extend gains on global stocks and bonds, and strengthened the US dollar against euro and yen. A similar effect was palpable in the Indian rupee which gained against US dollar. This was further influenced by the government’s decision to raise fuel prices. Indian stock market has also seen some rise because of reforms relating to foreign direct investment (FDI) and disinvestment. The benefits of FDI, especially in the case of multi-brand retail, will accrue over time but investors have to wait for the political clearance. Apart from this, 49% stake in domestic carriers by foreign airlines, 49% in power exchanges, increase of foreign equity cap to 74% in broadcasting services will buy the government some time with the rating agencies, some of who have already put India’s sovereign rating on a “negative” watch list.
The government’s effort to reduce the fuel subsidy bill has helped the Re-serve Bank of India to provide some monetary stimulus by reducing the CRR by 25 basis points and the RBI may also cut the rates in the future. These moves will be positive-both for the domestic stocks and currency. However, the ‘spillover’ effect of these initiatives on inflation cannot be ignored, which has already increased to 7.55%. Over all of these, the major force which drives the market is the political pressure which may roll back any of its latest reforms.
This issue brings to you some more interesting and insightful reads. The cover story of this month focuses on the US Federal Reserve’s latest effort- Quantitative Easing III. The issue also features an article on the future of Dollar as the reserve currency. The article of the month throws light on the full capital account convertibility. This issue also features other articles on the reality of real estate companies and LIBOR’s labor’s lost. The classroom section explains the concept of “CAT Bonds”.
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