|That sinking feeling again|
|Saturday, 06 August 2011 00:00|
With the Dow plunging to the lowest levels since the financial crisis in 2008 and European stocks falling to a one-year low, investors feel the world is once again looking at the threat of running aground. While investors fear Europe’s debt crisis could spread to Italy (which is too big to bail), the US debt-ceiling debate has shown politicians there suffer from much the same policy paralysis the Indian government is being accused of. While the global economy doesn’t really look like it is going into double dip, there is little doubt the markets are spooked by the possibility that neither European nor American politicians are ready to take the hard decisions that are needed. Another round of quantitative easing in the US, looking a bit more on the cards now, will force developing countries like China and India to further raise rates, choking off another source of stability for the global economy. The Sensex, naturally enough, reacted to the global mood by, at one point, shedding 702 points after recovering to end with a loss of 387 points. Most Asian stocks closed with equally heavy losses.
Whether the global mood sours further remains to be seen, and all eyes are on US unemployment data that is expected to show unchanged unemployment levels at 9.2%—Wall Street’s volatility index, the VIX, jumped to its highest level in more than a year. Though India’s exports have been remarkably resilient, the slower global growth will hurt, but more than that will be the impact on the ability of firms to raise money—in times of stress, global investors prefer to go back to US T-bills or German Bunds. And, as all quarterly data show, India Inc is slowing investment anyway. Now, more than at any other moment, is when India needs a proactive government coming out with policies to help industry grow. With RBI focused on anti-inflation measures, and the government embroiled in all manner of scams, the chances of government shedding its paralysis look low. The silver lining is the sharp fall in global commodity prices—including oil—that should give India some breathing room on its anti-inflation fight. For investors looking at value-picks, a lower Sensex looks more attractive—how attractive, of course, depends on the final earnings numbers.