Indian Markets Wilt In Drought

Indian markets wilt in drought By Mohit Satyanand 11 August 2009

The Indian Metereological Department (IMD) gave state governments 'permission' to declare drought in their individual jurisdictions yesterday. In June, the IMD estimated that this year's rainfall would be 93% of normal; yesterday, the estimate was revised downward to 87%. The declaration extended the downward presure on Indian stocks, which lost ground for the third consecutive trading session. Foreign investors continued to offload shares, contributing to the weakness. Direct tax collections for the period April to July 2009 have registered a mild growth, of 3%, over the corresponding period in 2008. Juxtaposed against a government budget that intends to expand expenditure by 36%, this underlines the fiscal pressure we will see. The IMD's 'permission' yesterday will now see a slew of state demands for relief measures, adding to the funding requirements of the Indian government. Money markets are taking a dim view of these developments, and bond prices dropped yesterday, taking interest rate yields on the 10-year securities to 7.09%. While I had been expecting long-term interest rates to rise, new RBI instruments designed to meet short-term needs of the government are now going to push short-term yields up as well. The growth in credit offtake in India has dropped to a decade low of 15.5% per annum. Higher interest rates will do nothing to boost this growth. While even the most raging optimist would not expect the nation to grow at 9-10% in the near future, I am now tending towards a 5% number