Two days back, the US Fed reserve announced that it would
keep interest rates low till the US unemployment rates come down to 6.5% (from
the current 7.7%). Typically all central banks have two key policy goals – controlling
inflation and keeping unemployment low. Linking their monetary policy so
explicitly with a 6.5 % unemployment rate means that the “low global interest
rate regime” is here to stay for some more time. This would mean that the there
would be a constant supply of liquidity globally and this would be a continuing
opportunity for emerging markets including India.
We can see the effects of this excess global liquidity here
already. FII’s have pumped more than $ 20 Billion into the Indian markets since
Jan 2012 – the second highest amount since 1993 (when India opened its doors to
FII’s). Due to this, the sensex has gone up by 20% in the last 12 months. Easy liquidity will also help India finance its
external deficit at lower costs in 2013. It also means that Govt would find it
easier to mop up money through privatisation of select PSU’s.
However, easy liquidity also carries the downside of
increased commodity prices especially Crude oil and Gold (these are highest
import items for India).
So these are the positives and negatives of the Fed decision
with regards to us in India.
Will the India Stock markets go up in 2013?
Well
you decide. I will share my views about Indian stock markets in 2013 in a post
closer to New Year eve.
Thnks fr da insight Sir nd keeping us up with the global financial news during our exams.
ReplyDeleteI have a different view wherein the extra liquidity getting pumped into Indian Economy will flip slip into the pockets of few and overall there wont be much development with that extra liquidity .
ReplyDeleteTraditional Business Houses will shell off their equity to the foreign players at higher valuation . No good to the society will happen
Sure Steve - the rich get richer and the poor stay poor -that is the sad truth.
DeleteBut as you know FII's have the power to lift the stock markets or drop the stock markets in India and that is what one can use to make money