Arab Today, arab today macroeconomic woes dent outlook
Last Updated : GMT 23:12:04
Arab Today, arab today
Arab Today, arab today

Macro-economic woes dent outlook

Arab Today, arab today

Arab Today, arab today Macro-economic woes dent outlook

New York - Arabstoday

Investors in Indian equities are increasingly withdrawing into a shell as the country\'s macro-economic problems deepen, putting at risk even the watered-down growth targets. The slumping rupee, which plumbed record lows for seven days in a row, was the latest sign of the mounting unease in the markets. The currency\'s almost 14 per cent dive since early February has knocked foreign investors harder than the drop in share values. An uncertain outlook for the rupee that sunk to a lifetime low of 56.40 against the US dollar last week, thwarts any possibility of foreign capital inflows in the near term. \"Currency risk has jumped to the forefront when investment calls are made and the picture is grim,\" said equity salesman Nimesh Shah who deals with foreign funds. \"It\'s pretty much wait-and-watch mode at the moment. This is unlikely to change until atleast September.\" New Delhi needs to take hard decisions such as slashing subsidies and wasteful expenditure to plug the huge hole in its balance sheet, and simultaneously open up the economy to foreign capital investment — a move that would help reduce the current account deficit and enable the rupee to rebound. However, India lacks the political leadership and the dominant Congress party\'s penchant to pander to populism has only made the situation worse. Coalition politics with each group pulling in different direction is another drag on the country. India\'s aviation sector is in dire straits with almost all carriers bleeding due to high taxes on fuel, airport charges and other costs. Jet Airways, the country\'s largest carrier, reported a fifth straight quarterly loss, while Kingfisher Airlines has slashed its flights and is struggling to pay salaries. The state-owned Air India, whose services are among the worst, is kept afloat through government handouts. Other carriers like SpiceJet and Go Air are also in the red, while unlisted Indigo Airlines is the only one to post a profit. The sector clearly needs foreign participation to help them bail out. Yet Prime Minister Manmohan Singh\'s government has been sitting on a proposal to allow foreign carriers to invest up to 49 per cent in domestic aviation, underscoring the policy paralysis that has gripped New Delhi. \"The talk among business circles is that it is difficult to work with this government,\" said a fund manager at a foreign asset management company who cut all exposure to aviation stocks, including Kingfisher. This message is widespread. A survey of offshore fund managers conducted by Bank of America Merrill Lynch in May found more than 55 per cent of the 234 respondents were underweight on Indian equities — more than double than in a April poll when only 22 per cent were bearish. The Wall Street bank also downgraded its forecast of India\'s growth in 2012-13 6.5 per cent from 6.8 per cent previously, citing the fallout from the Eurozone crisis as a major rationale. Growth predictions However Goldman Sachs, which cuts its estimate to 6.6 per cent from 7.2 per cent, indicated that domestic problems were the main reason for the downgrade. \"We are revising our GDP growth forecast largely due to a weaker investment outlook, in part driven by domestic policy uncertainties and more back-ended and lesser monetary policy easing, and in part by prevailing global uncertainties,\" Goldman wrote in a report. The top-30 Sensex has lost 6.4 per cent so far in May, and is set for its biggest monthly fall since at least November although a steep increase in petrol prices by state-run refiners has given the market some respite as the move reduces the revenue losses of fuel marketing companies. For the market to perk up, the government would have to bite the bullet and raise prices of heavily subsidised prices of diesel and cooking gas. Although this would fan inflation pressures in the short term, the benefits over time far outweigh. By lowering subsidies, India would be able to scale down its fiscal deficit and help lower public debt — two factors cited by rating agencies as trouble spots for the country.  

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