...As for India, this remains to GREED & fear the Asian market and the Asian economy where the problems are most self-inflicted in terms of the continuing lack of an investment cycle and a growing currency crisis. The Reserve Bank of India’s tightening moves in July, which seem to have been ordered from Delhi in an attempt to shore up the currency, clearly backfired in large part because of misguided communication and conflicting signals. There have also over the past week and more been retrograde steps to impose restrictions on residents’ capital outflow. Thus, the limit for outward remittances was lowered from US$200,000 to US$75,000 per financial year. The result has been a further loss of investor confidence and a further decline in the currency.
The rupiah [sic] has depreciated against the US dollar by 5.6% since the announcement to Rs65/US$, and is down 15.7% year-to-date and 31% since the start of 2011 (see Figure 8). It is also the case that the latest inflation data has also been less than stellar, which has further highlighted the lack of scope for easing. Thus, WPI inflation rose from 4.86%YoY in June to 5.79%YoY in July (see Figure 9).
India at risk of sovereign debt crisisThe result is that India remains in GREED & fear’s view the Asian market most at risk of a sovereign debt crisis with chatter apparently growing in Delhi of a potential need to sound out the IMF. This is despite the fact that India does not have a debt market reliant on foreign capital given the lack of foreign ownership of rupee debt. Thus, foreign ownership of Indian government securities was only 1.61% at the end of March, though it is up from 0.88% at the end of March 2012 (see Figure 10). In this sense India is not directly correlated into emerging market debt dynamics.Where the foreign ownership is, of course, is in Indian equities. Foreigners currently own an estimated 22.4% of Indian equities (see Figure 11). Indeed, it remains remarkable how little foreign net selling of Indian equities there has been in recent years, given the macro distress and the related plunge in the GDP growth rate. CLSA’s economics team is now forecasting real GDP growth of 5.2% this fiscal year and 5.9% next (see CLSA research Infofax Daily – India GDP: Growth asphyxiation, 6 August 2013). Thus, FIIs have sold a net US$3.2bn worth of Indian equities since mid-June, after buying a net US$15.4bn since the beginning of this year (see Figure 12)....MUCH MORE