‘The rupee ended steady on Wednesday while call money rates continued to stay high following the steps taken by the Reserve Bank of India (RBI) on Monday to support the currency. The local currency closed at 59.35 per dollar, down 0.05% from the previous close of 59.32. The currency opened at 59.06 but lost some of its gains towards noon. The interbank call money rate went to a record for the second day, rising to 9.25%, but then eased to 7.50%, up 19.05% from previous close of 6.30%.’ ( courtesy/ photo: LIVE MINT News)
Being an emerging market and/ or a developing country has its own merits as well as demerits. Emerging economies such as India, South Africa, Indonesia, Turkey and Poland are vulnerable to the risk of a sudden stop in investment flows as investors re-consider exposure to these markets which have only attracted trillions of dollars of ‘cheap money’ printed by ‘developed world’ central banks.
Definitely, I can very well understand that the foreign exchange market in India is not yet fully ready for global trade fluctuations. The securities market in India is quite shallow and extremely vulnerable to the impact of external forces. At this juncture, it is essential to build up the securities market in India. I quote Bhavtosh Vajpayee, Managing Director, Barclays Securities :’the investment cycle in India is completely broken, there are serious balance-sheet issues, and the macro variables are getting to a point where it’s difficult to quick-start the economy.’
US Federal Reserve chief Bernanke has simply stated his wish that he wants to weigh the option of withdrawing the stimulus to the US economy ; nothing has firmed up as yet. He is talking of ‘quantitative easing’ (QE) and not of total withdrawal of the stimulus. One should ask the question: Will the US economy stay strong as the data on the desk is reflecting or portraying or is China going to decelerate ? And these pointers are going to create swings between developed market and emerging market equity allocations. This is not so clear as of now. That’s why, my first reaction to the Indian rupee slide was – Was Bernanke right in thinking so aloud ? While the economies such as Brazil, Russia and China are also not doing well, India looks better and insulated. But India-dedicated money has remained stagnant and this is unlikely to change in the near term. India markets have not much depth as there are not much country-specific internal efforts to create a investor friendly climate. Other than Provident fund (PF) supported by the government of India, there are not many investment avenues for the Indian citizens to rely on.
Such are the problems in any developing country like India ! Let’s see, now that Dr Manmohan Singh has relaxed the FDI norms yesterday across the various industries, we need to watch how comfortable the FDI investment climate is going to be in the near future ?