Global Cues & Indian Markets

By itself the hits from sub-prime mortgage is not all that big - around $30 bn (max, assuming all of 120,000 odd borrowings in this segment end up in defaults & foreclosure) by one estimate. The Fed has already pumped in some 45 bn. Another 200 bn has been infused by other central banks. But nobody knows for sure what the hit due to the 'multiplier effect ' can be. In other words this is a situation where it's become quite impossible to ascertain the total liabilities.

Now for pull-outs from capital markets. Almost a trillion dollars of market cap has been erased since the start of this correction globally. Assuming a third of this has been due to FIIs we get a fig of around 333 bn. Commodity mkts have also corrected quite a bit. This being the most liquid mkt harbours a substantial portion of HFs. If we peg the total pullout from equities & commodities at around 550 bn $ it will exceed the value of all sub-prime and Alt-A mortgages in the US. But will it be sufficient to meet redemption by panicky investors? No idea.

Now for the fallout on the broader economy. Apart from hurting consumer spending it may lead to a freeze in bank lendings. Call money rates in US & Europe have spiked in the last few weeks as banks are not prepared to even lend to each other. But on the other hand company reserves are at a high & gearing ratios at a low. So there is no pressing need for corporate credit except in large M&A deals which will get postponed for a while. Also internal reserves of central banks are at comfortable levels (In EMs like China, India, Brazil the external reserves are at all time highs). Since int rates have undergone tightening in the last 2 yrs. CBs will also be in a position to cut rates if necessary.

So on the face of it the liquidity squeeze would seem to be a temporary & surmountable one - but then due to widespread securitization & leveraged trading in high risk instruments in the last 2-3 yrs nobody knows exactly how deep this 'virus' has percolated.

Regards,
Kalyan.

Uasish,

an apartment in hyd which i have n't bought in 2002 for 7 lacs because i used to think that land appreciates, apartments depreciates, today sells for 35 lacs. we need not worry about subprime exposure of indian banks, our "local exposure" is enough of risk for our banks, if things slow down

raosrinivas,
In my foot note ,the Risk i was refering was not to any type of Mortgage,(though my language may not have been explicit).I was refering to the Risk of ECB's & M&A by Indian Companies ,overseas ,funded by Foreign Banks or Consortium of Banks,Leveraging their Indian business.That Risk element where RBI stands Collateral .
In fact our Mortgage Finance Mkt is not only underdeveloped rather an infant.Think of the enourmous Wealth waiting for Leverage.My House ,if possible to mortgage (some PSU Bank has a Dwarfed Desk) & if only 75 % of present valuation is Advanced to me,along with all my neighbour's house on our Street ,a Huge amount of Money, Lying Idle.
There in US the situation arised becoz of stiff competition amongst the Mortgage finance companies ,as they relaxed the Minimum permissible Criterion ,rather knowingly ignored the Credit worthy / repayment ability ,to atain Volume growth.
Here no Pvt Banks are taking any initiative to tap this Vast Mkt, one of the Reason being ,lack or no presence of "Mortgage Insurerors" ( National Insurance has a nominal Desk at their HQ only).

Asish

The dow is going to deep red....possibly indian market will follow suit with another crash of around 600 points and nifty another 150 points. let us wait for the dow to close for the day and if it closes below 12600, one can expect a huge carnage inthe indian market...
seniors, ur opinion please..............

koshyssj

rgt,,,golbal mkts are really worrying us,,and meltig down our indian mkt...and still tosay nasdaq...50 points down,,,looking for abit bounce ,,may be tom,,sinc eintra wsa oversold,,,but ngt not handle,,,
secondy nest week more horrible ,,,loking towards...4000/3988 levls...were i think ,,,buying may generate...

renu