India: A Heaven of Calmness in Volatile WorldJul 29, 2015(18:00)
The world is volatile, right from Chinese stock market collapse to uncertainty on Fed’s decision regarding interest rate hike. Not to forget, to top it, occasional Grexit fears and associated pressure on Euro. Brazil is in doldrums with falling crude oil prices and about 30% depreciation in Brazilian Real.
In middle of all this volatility, India is standing as heaven of calmness.
International investors are pulling out of China, fueling record outflows through the Shanghai-Hong Kong exchange link, amid a $3 trillion plunge in mainland equity values since June 12. The fall in Chinese markets equals 12 times Greece GDP and almost 1.5 times that of Indian GDP. China’s interventionist response to the market fall and unprecedented trading restrictions has prompted foreigners to shift their equity exposure away from China.
With the impending imminent Fed’s decision to increase the interest rates acting as overhang, the emerging market currencies are under tremendous stress. For instance, Brazilian currency (Real) has depreciated by 30% this year and Brazilian sovereign credit rating has been kept on negative watch by S&P with the possibility of downgrade. If Brazil gets downgraded from its current rating of BBB- (the last pedestal of investment grade), the country’s credit rating will fall into junk status.
Even though Indian Rupee has seen some depreciation this year, the situation is largely under control in India thanks to falling crude oil price and record high forex reserves close to US$355 Bn.
India is standing with a steady macro-economic picture and is relatively insulated from any slowdown in China compared with other emerging markets such as Brazil and South Korea. With falling crude oil prices and improving Current Account Deficit situation, India could see greater interest from FIIs, as it is projected to be the fastest-growing major economy.