The news about the renegotiation of a tax treaty with Mauritius was just the final prod that pushed a teetering market over the edge. But what kept it down there on Monday was the evolving crisis in Greece, which is reminiscent of a similar one 13 months ago.
The latest event in that saga was a European Union statement issued on Monday, which said the organization is deferring the payout of another tranche of bailout funds to Greece and then, too, conditionally.
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That was enough to spur a fresh wave of risk aversion around the globe on fears of a Greek default, higher borrowing costs and general economic bedlam.
As it is, foreign funds have been withdrawing money from emerging markets; India being no exception. Fund tracker EPFR Global reported on Friday that Indian equity funds recorded a seventh straight week of outflows.
While there is a sense of déjà vu regarding Greece, things couldn’t be more different locally. In May 2010, the economy was still expected to clock an 8.8% growth for that year, and earnings were gaining at a double-digit pace. The Reserve Bank of India was still in the early stages of a rate hike cycle.
Now, almost all indicators are pointing to a slowdown, whether it is the HSBC Purchasing Managers’ Index or factory output numbers.
New Delhi is busy sorting out governance issues and dithering on policy. Brokerages are on a downgrading spree —whether it be earnings estimates or gross domestic product growth forecasts. Inflation continues to be a menace and rate hikes are dragging on interminably, it seems.
Yes, these warning signals have taken their time in coming and it is reasonable to assume that these have been discounted. Indeed, the Sensex is trading at 14 times estimated earnings for fiscal 2012, below the long-term average.
But Greece continuing to be a wild card; and no other positive news forthcoming, it’s but natural that Indian investors turn skywards, all eyes on the monsoon rains.
Graphic by Sandeep Bhatnagar/Mint
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