Global turmoil to have minimal impact on India

Despite financial crisis in the US market, India would continue to grow at high rate of 8% to 9%
in the next couple of years.
Chief economic advisor Arvind Virmani told  financial crisis will have a minimal direct impact on Indian
economy and it will grow at the projected rate of around 8% in 2008-09 and 9% in 2009-10.
The main reason behind the optimism is correction in the commodity prices in the international market,
because of the the slowdown in the global economy. The crude oil prices have already corrected to around
$ 100 per barrel from over $ 140 per barrel few weeks back. This will help bring down the inflation in the
country. Virmani said that by March 2009, inflation will be brought down to single digit from over 12% at
present.
However, the financial crisis will have some indirect effect on the Indian economy as it will lead to liqudity
tightening. This will lead to firming up of the interest rates, affect the inflow of foreign direct investment and
export of goods and services to an extent. But, Virmani said these will not have much effect on the growth,
as they can be addressed by tweaking the government policies.
Goldman Sachs also felt in the same manner. In a report, it said, "We believe the credit crisis, which
reversed the tidal wave of cheap foreign capital over the past few years, will have less of an impact on the
economy's fundamentals."
If the inflation is brought down to single digit, the government and the RBI can take measures to ensure
that liquidity crisis does not affect economy. Virmani said that India's financial system remained intact even
during the present crisis. This, he said would give confidence to the foreign investors, including the nonresident
Indians to invest in India.
Goldman Sachs pointed out India's external sector is holding well and various indicators suggest condition
is undercontrol. The financial sector, the report said, remained sound, mortgage are a fraction of total credit
and exposure to inflated real estate is small.

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SBI mulling overseas acquisition, hints Bhatt

Amidst global financial distress, State Bank of India (SBI) has hinted that it is mulling overseas bank acquisition. SBI Chairman O P Bhatt today indicated that though there were no immediate plans, but the bank was definitely having a look at it.
"It (overseas acquisition) will be. There is no immediate target, there is no immediate plan, but we are thinking about it. We are looking more in terms of consolidation (overseas) where we have business. Increasingly, we are aligning our overseas operation with the Indian diaspora," Bhatt said.
However, Bhatt also stressed that the bank would continue to focus on expansion in the domestic market. "With the way India is growing, there are huge pockets of profitability across the country. There is a need to expand in the domestic market vigorously," he said, while addressing the first press meet after the merger of State Bank of Saurashtra with SBI. Commenting on the bank's exposure to Lehman Brothers, he said that it has fully provided for its $5 million exposure."We expect to recover 60-70 per cent of it (Lehman Brothers' exposure)," Bhatt said.
SBI, the largest lender in the country, has raised concerns about rising interest rates as it may lead to an increase in the non-performing assets (NPAs) of the banking sector.
"At the moment, we are not seeing large increases in NPAs, but we should be watchful of them," Bhatt added.
The bank is eying a credit growth of 24-25 per cent during 2008-09. "Credit growth continues to be relatively high compared with deposit growth in absolute terms," he said, pointing to tight liquidity conditions in the banking system.
Bhatt also said that he did not expect interest rates to fall in the immediate future.

Ad Spending cut by 50 %

One of the worst global meltdowns in recent history is expected to immediately shortcircuit the advertising sector, as corporates continue to tighten their belt. The reverberating shockwaves have started making their presence felt, and corporates have cut back on their advertising and marketing spends, in some cases by almost 50%.
    While some advertising stalwarts insist it is too early to be overly concerned, others maintain that a recovery of the US economy should be under way mid next year or the advertising market could run out of gas.
“We believe structural headwinds (like fragmentation) remain as real in India as they are globally. The disconnect between the underlying economy and the ad market cannot continue indefinitely,’’ says Nakul Chopra, CEO, Publicis South Asia.
    “In the end,’’ he adds, “the whole marketing business is about funds and optimism. Corporates will hunker down for a brief period. Already, big clients have cut back their marketing spends by fairly large amounts in the US and Europe this year. This is bound to have a cascading effect in India.’’
    Adds ad guru Prahlad Kakkar, “Big financial brands going bellyup is bound to have a knock-on effect on consumer confidence and spending. Corporates have already cut down 50% of their ad spend, due to the oil crisis. The total advertising spend by major corporates is 6% of turnover. If inflation is 13%, where does that leave advertising?’’
    Maintaining that the economy has witnessed rising public spending and house prices, financial and business services, Kakkar adds, “Just as the boom has had a disproportionate effect on the economy, its suffering will have a similarly large impact.’’
    Executive chairman of O&M, Piyush Pandey, however, says, “We will have to wait for more from the markets before we start hitting the panic button. Corporates in India will definitely feel that US ripples, but it will reach them slowly. I don’t see any immediate impact. It all depends on how you play the game. One does need to be cautious though.’’

'India most attractive market for investment'

Black Monday's chilling global financial meltdown, despite the overall gloom and initial impact
on the stock markets, has a golden upside for India by helping renew its tarnished India shining story.
"There is no cause for panic as a result of this temporary movement in the capital market as FII's pull out
money to replenish their funds overseas. India will be the most attractive market for investment in the next
five years", says Dr Amit Mitra, secretary general, Ficci.
"FDI inflows will be unaffected as India is the market of the future. Since we do not allow full capital
account convertability, insecure investors cannot flee to other markets, which means we are well insulated
from this global financial shock", he says.
Agrees, C Banerjee, director general, CII. "India is a stable economy. FII outflow is just a temporary
phenomenon. It will come back in 3-4 months and India's growth story will be renewed," he says.
"Short term impact is expected, but I do not see long term impact allthough we are not decoupled from the
global economies", says Jairaj Purandare, leader-markets & industries, PricewaterhouseCoopers.
However, he does warn of weak sentiment affecting corporate results. "But India stands out as a more
attractive market in this crisis," he adds.

India Inc too will feel US crisis tremors

The US financial market crisis will have more than just indirect impact on India. Besides the fact that jittery

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
.