FIIs are also spooking Indian markets, the sale of Merrill Lynch to Bank of America and filing for bankruptcy by Lehman Brothers are likely to affect a number of Indian companies dealing directly with these beleaguered US giants.
What’s more, if the trouble brewing in American Insurance Group (AIG) in the US also turns into a crisis, it could spell disaster since AIG has a large array of interests in India, ranging from financial markets to realty.
The latest developments have signaled that the crisis in the US financial market is far from over. This is going to impact FII inflow into India, said HSBC group GM and country head Naina Lal Kidwai. The initial effect was clearly visible as the sensex fell by 470 points on Monday. At one point it had lost mroe than 800 points over last week’s close.
Former RBI governor C Rangarajan agreed that though India is not directly affected by the US subprime loan crisis, the financial turmoil there will have some bearing here. Both Lehman Brothers and Merrill Lynch have taken large stakes in a number of Indian companies. As even remaining afloat seems to be a hard task for them, a senior merchant banker said, they are offloading stakes in the Indian companies. This has affected share prices of the Indian firms.
Sebi figures released on Monday showed that FIIs have pulled out a net $8.01 billion since the beginning of 2008,with over $900 million of this outflow in the first half of September alone. As against this, FIIs had poured in over $17 billion into India in 2007.
In India, Merrill has invested in over 200 companies, of which in 177 it owns over 1% of paid up capital as on June 30, 2008.
Fed injects $70bn into markets The Federal Reserve on Monday said it had agreed to inject $70 billion into financial markets. The New York Fed,acting on behalf of Federal Reserve, said it agreed to a series of so-called “repurchase agreements” to ensure market liquidity
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