Is Worst Over For India???

Last Saturday, I wrote on the same topic, right???

So I am continuing from that point, if you see the below table you can notice the improvements in the hiring patterns.


See the Textile, Gems & Jewellary and IT-BPO sector hiring pattern which shows the possibility of improvement in the export. And overall also there is change from -0.64 to +0.68 in direct workers part & from -0.3.53 to Zero from 3rd to 4th quarter of 2008-09.

And according Business line article...

Copper, which is used in the construction, electrical and telecommunications industries, has tended to lead any recovery in prices. From its lows in December 2008 to current levels of $4,960 a tonne on the London Metal Exchange, copper has seen price gains of 80 per cent. Chinese imports since March have been about 400,000 tonnes more than the normal stocking levels. This has been a key supportive factor for copper prices.

And according Tata Steel spokesperson...

Volume surged by 18 per cent to 4.69 lakh tonnes in May on the back of robust demand from auto and construction sectors, in the corresponding month last year, the company's sales stood at 3.97 lakh tonnes. The sale of long products, mainly used in construction industry, increased by 34 per cent while that of flat items, used by auto and consumer durable sectors, increased by nine per cent, over the year-ago period.

The company claimed that one of its steel melting shops in Jamshedpur achieved best-ever May production at 2.18 lakh tonnes. Also, a merchant mill recorded best-ever May production of 30,710 tonnes over 28,505 tonnes the same period last year.

And according to Swaminathan's article in STOI,

In April, foreign institution investors (FIIs) poured $1.3 billion into Indian equities. They poured another $1.87 billion in the first half of May - before the election result. For May as a whole, the inflow was $4.14 billion, or a billion a week.

This is part of a global phenomenon. Since April, $20 billion has flooded into all emerging markets. The Sensex is up 50% in 2009. But Russia is also up 63%, China 57%, Brazil 60%, and Argentina 45%. So, the dollar flood is not India-specific: it is part of a global rush into all emerging markets, especially the BRICs (Brazil, Russia, India and China).

With fear lifting, global billions are moving out of safe havens into growth havens. Risk premiums on all financial asset were sky-high in March but have now fallen sharply. So, global billions are moving into junk bonds, corporate debt, commodities, and emerging markets too. Idle money waiting to be invested adds up to at least $2 trillion, maybe much more. If just $100 billion of this goes into emerging markets, that will fuel huge stock market booms.

Sceptics say this is another bubble in the making, unjustified by current profits or any change in India's economic fundamentals. Now, foreign direct investment in factories is certainly better than FII inflows into stock markets. But the flood of $1 billion per week is not just speculative froth, it is actually improving our economic fundamentals.

Earlier, the economy was hit by a negative feedback loop. That is, stress in banks reduced credit to industries, which then suffered falling profits and loan defaults. These in turn worsened the balance sheets of banks, which then lent even less to industry, in a vicious downward spiral.

The new flood of $1 billion a week is changing the negative feedback loop into a positive one. Suddenly real estate companies that were almost insolvent and could not attract either loans or equity have been able to place almost $2 billion with qualified institutional investors.

If shady real estate companies can attract money, anybody can. Suddenly access to finance has become easier and cheaper. Improved finance means improved profits in industries, which means fewer loan defaults. This in turn means better balance sheets for banks, which will be able to lend more to industries, in a virtuous upward cycle.

Thus, a positive feedback loop is replacing the negative one. The bad news is that exporters will be hit by the appreciation of the rupee caused by the dollar flood. The dollar has gone from Rs 52.06 on March 20 to Rs 46.84 on June 4. Still, the positive feedback loop should lift India's GDP growth to 6-7% in 2009-10, up from earlier estimates of 5-6%. That is a substantial gain, though not revolutionary.