US Economic growth skids to 5 year low

sharmaji · #11 30th January 2008, 11:35 PM

but why FIIs are pulling out from indian markets? If US economy is going into recession, India seems a good and logical option to invest with growth forecast around 8.5 %, isnt it? can you please explain?

alpesh14 · #12 30th January 2008, 11:59 PM

Its widely expected that when US will go into recession, most of the countries will suffer. I may be wrong but did you notice sharp 7% fall in chinese stock market couple of days ago. There was rumor that china will slow down along with us recession.

I don't think india can isolate itself and keep on running like its doing now.

manafa · #13 31st January 2008, 04:46 AM

Quote:

Originally Posted by sharmaji

but why FIIs are pulling out from indian markets? If US economy is going into recession, India seems a good and logical option to invest with growth forecast around 8.5 %, isnt it? can you please explain?

Sharmaji,

Great question. Unfortunately the answer is not that simple.

FII investing, especially in emerging markets have become a short-term-gain game. Hedging is a big part of the strategy. They speculated and overvalued indian stocks to their heart content in the last two years and off they go with their profits. These profits cover up their losses in the US sub prime mess. Take a look at the subprime losses across Europe, China, Japan, Australia even South Korea, they are in hundred of billions. Most overseas investment institutions spread their holdings in many instruments to cover up their losses from where they gain. The last few weeks have been very difficult and to remain above water most of these institutions are taking their profits where they can, and hence a major contributor to the sell off we see. The way middle eastern, chinese and other investors are buying major stakes in the downtrodden companies like CITI, Goldman Sachs and other companies is scary not only to the companies but to their respective governments. If these companies do not keep their share prices up chances are they will loose majority ownership to overseas investors and to this end they are taking off huge profits made over the years, at the expense of retail investor who got sucked into their speculative hedging.

I dont believe FIIs will be coming back in droves anytime soon since the rate cuts indicate deeper problems and the bleeding from sub prime has not stopped yet. More and more investment institutions are reporting losses on a daily basis. Our markets may remain stagnant for a while, perhaps sideways going up and down, but nothing spectacular as we have seen before, despite a good earning season. We are also waiting for the money trapped on the sideline with the mega IPO. Investor confidence is deeply bruised and might take some time to heal.

Happy Trading

Venkat123 · #14 31st January 2008, 10:26 AM

Quote:

Originally Posted by sharmaji

but why FIIs are pulling out from indian markets? If US economy is going into recession, India seems a good and logical option to invest with growth forecast around 8.5 %, isnt it? can you please explain?

Sharmaji,
Do you really think India's GDP will be anywhere near 8.5% next year? India may not enter a recession but it will certainly feel like one.