Crude Shocks keep India in Smiles

“The economics of oil have changed. Some businesses will go bust, but the market will be healthier,” says the Economist (December 6, ’14). Is this the beginning of cheap oil regime or just an interlude between two big bumps?

2013, in retrospect, had turned out to be the strongest year of recovery, with growing US Economy and stabilizing Chinese economy. Commodity prices were projected to remain flat with an up-side risk due to unexpected supply-side shocks.

Enter December 2014 and all the projections seem little more than wishful thinking. IMF went on record recently: “the global economic growth may never return to pre-crisis levels” ! All the Quantitative Easing (QE) from the US (3 till now – totalling over $ 4 trillion or, twice that of the entire Indian economy) which was supposed to push cash to banks ended up just in increased valuations and stock indices accompanied by higher prices of gold and other commodities. Emerging economies like India had to contend with high inflation. Some even said: it is ‘US Fed exported inflation’!

Now we’re in a scenario where

Currency Crisis - Impending Regulatory Restrictions

Ok, Fed's fed-up with no real progress on the growth since the last QE (Quantitative Easing) of nearly a trillion dollars - so its' decided to pump in another 0.6 trn more into the system - primarily for buying debt of nearly insolvent organizations...not good - say many central bankers.


I was reading this excellent article through Mish, (you can read full text here). It points out that some countries, including South-Korea, China (incl. HK), and Brazil have already indicated in no unclear terms that they're deeply concerned about a lot of QEII money flowing into their currency and upsetting the finely balanced currency system (read appreciating local currency, lower exports, expanding trade deficit, coupled with lobbyists getting upset, and governments not seeming in control of the economy). So they've indicated a slew of measure to be put in place to ensure that the money doesn't flow-in too easily.


That said, the Golden Indian regulatory bird is yet to flutter its wings...and I don't think its sleeping...so I do expect some tightening in FDI policies sometime soon...timing is of essence here - considering a battery of PSU FPOs and IPOs lined up. If the markets get a whiff of such measures, its gonna tank - taking disinvestment targets out of reach for this financial year at least.


So Stay tuned...and stay nimble.