Meanwhile, the (largely government-owned) oil companies continue to bleed for the want of cash-flow, though the reduction in oil prices will help reduce this pain.
However, a weakening rupee will offset some of this benefit.
The even bigger fear is that once oil companies become weaker, the government may find an excuse to give them away to the private sector players, in much the same way as the government gave away some of the most lucrative oil fields belonging to Oil and Natural Gas Corp. Ltd almost 15 years ago to a clutch of favoured companies under the first phase of the New Exploration Licensing Policy— no tenders, no independent valuation; just the plain transfer of public assets.
Some call it another instance of the privatization of profits and the socialization of losses.
But more about this later, as it warrants a more detailed analysis.
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Sovereign anxieties on shifting investments
Sovereign wealth funds (SWFs) are shifting investments away from the US and Europe and into West Asia and other Asian economies. Moreover, they have also shifted their investments from finance companies to (surprise! surprise!!) real estate, but in emerging economies.
These are the finding announced by the Massachusetts-headquartered Monitor Group last fortnight, as part of its update to its June 2008 report Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy.
Some of the findings:
# SWFs continued to invest actively in emerging markets. In the second quarter (Q2) of 2008, more than half the deals and funds invested were in emerging markets. SWFs carried out 26 deals and invested $15 billion (Rs74,700 crore) in Bric (Brazil, Russia, India and China) and non-OECD (Organisation for Economic Co-operation and Development) countries.
# In Q2 2008, funds in the Monitor SWF transaction database executed 43 deals totalling $26.5 billion. In contrast, those funds executed 42 deals totalling $58.3 billion during the previous quarter.
# Investment in North America dropped dramatically. In Q2 2008, four deals totalling less than $1 billion were received by North America. In contract, this region received seven deals totalling $23 billion during the previous quarter (Q1 2008).
# Half of the deals by value in Q2 were in real estate. Real estate had the largest number of deals (12) and the highest investment ($13.7 billion) in Q2 2008.
# During Q2 2008, investment has shifted away from financial services. SWFs carried out 10 deals and invested $4 billion in the financial services sector during Q2 2008. In the previous quarter (Q1 2008), funds carried out 13 deals totalling $43.4 billion. With the disenchantment with the US, does this suggest that the dollar will weaken in the near future?
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com.
Graphics by Paras Jain / Mint and Ahmed Raza Khan / Mint