Narayan Ramchandran of Morgan Stanley said that 50 bps Fed rate cut in early 2008 is very likely. Although, he is surprised by 50 bps cut by the Fed. Fed believes that housing situation is still very serious and they might cut the rates again. He don't think that global slowdown would be too serious. Real bail out was from UK Central Bank.

He further said that valuations are no where next to peak and are not too stretched currently but sees some economic slowdown. There are no problems on earnings or GDP growth in India. He believes that India is one of the best assets in the context of global slowdown. But growth could slow to 7 -7.5% in India. He said that there may see 'Garden Variety' slowdown instead of serious one. He would remain invested in the Indian markets as fundamentals are still strong.

He believes that the US Subprime Issue has been eased and that he will remain invested in the markets. Money will flow from developed markets to emerging markets.

He further said that RBI is expected to pause rather than cut the rates and Asian Central Banks may also turn neutral from hawkish. He believes that rupee effects on stock markets and IT stocks is overdone. The rupee impact may not be as bad as market makes it to be. About Yen, he said that Yen carry trade may not be as 'Alive' as it was 4 months ago.

He is bullish on Telecom and IT sectors and believes that technology companies will continue to show very good RoEs. Most of the long-only investors will gain in the near-term. There is more probability of upside in 1 year and may not see 20% fall in the market. There are higher probability of markets going upside than downside.

There is little value in China and India on the surface, with PEs of 17-18x. But there is excitement in them. While the US grows at 1.5-2%, and Taiwan grows at 3-4%, China and India are forecast to grow at 9-10% over the next five years. So where do you buy?

Decoupling of Asian markets from US has been a big theme for the past few months in particular. As the data is suggesting the ML decoupling hypothesis has proved right and we are seeing a divergent trend in stocks markets also.At the same time another decoupling theme is also worth examining. The Asian giants India and China might also be decoupling from other emerging markets in their growth trajectory. We take a look at the growing relevance of growth themes like India and China over value proposition.

Investors prefer growth

India and China (against India or China) are the economies where the investors are focusing at present. Since the credit market problems shook global stock markets, China’s stock market has held up. Chinese shares are 38% higher than they were when the problems started. India is though about 1.5% down than its July peak, year-to-date foreigners have net bought about USD9bn worth of shares in India.

Remember Chinese A-shares are all but closed to foreign investors, so even if they are in risk-reduction mode globally, they have almost nothing to sell there, as against Indian stocks markets which are open to foreign investors. Implying, that global investors are increasingly making their own decisions about where to put their money, instead of sheepishly following benchmarks. It appears they are making their own calls, by identifying areas of growth. India’s growth is forecast to be twice that of Taiwan or Korea, this year and next.

Thus, the key is simply which countries will continue to register the strongest growth, because growth is what investors want to buy.

Commerce and Industry Minister Kamal Nath today said the slowdown in industrial growth is 'not a matter of concern' and hoped that the manufacturing growth target set for the current financial year to March would
be achieved. India's industrial production slumped to a nine-month low in July 2007 to 7.1% compared to 13.2% a year ago and 9.0% in June.

"The slowdown is not that much a matter of concern as it is mainly due to contraction of credit that resulted in steep decline in demand of consumer durables," Nath told reporters at an industry function. He said the slowdown in industrial production is not due to any structural deficiency. "The country is likely to achieve 12% manufacturing growth target set for the current financial year," Nath said.

Nath said the monetary policy should essentially aim at contraction of credit to contain inflation but at the same time it should not lead to decline in the demand for consumer durables. He said the government is hopeful of meeting the export target of $ 160 bln set for the current fiscal despite high crude oil prices. "I'm not amending the export target as July and August are difficult months due to the monsoon," he said.

"The improved efficiency and competitive production by Indian exporters has helped offset the high input costs," the trade minister added. On the government's plan to impose cess on organised retail, Nath said, "I
am not aware of any such move on the part of the government.

India's industrial production in July fell to a nine-month low of 7.1% compared with 13.2% a year ago, and 9.0% in June. Growth in India's industrial production in July slowed down on fall in growth in manufacturing, especially consumer durable goods. The manufacturing sector, which accounts for almost four-fifths of the total weight of the Index of Industrial Production, grew 7.2% compared with 14.3% a year ago.

Output of consumer durables for the month declined 3.2% compared with a growth of 16.1% a year ago. The industrial output growth in July is below consensus estimates. According to a NewsWire18 poll of 11 analysts, industrial production in July was seen growing 9.7%. Industrial growth in Apr-Jul, the first four months of 2007-08, grew 9.6% compared with 11.1% in the same period of last year. In July, electricity generation and mining output grew 7.5% and 4.9%, respectively.

Shubda Rao of Yes Bank said that July mining growth stood at 4.9% which are a shocker. The numbers may have been lower due to inventory problems and floods. Moderation seems to have set in for industrial growth.

She further said that a small part of the numbers can be explained by the base effect and will not have to reduce GDP guidance significantly at this point. She maintains GDP growth estimates at 8.5%. She said that gradual tapering down in used based products have seen and hence, August jump may not be dramatic and phenomenal.

"The slowdown in industrial production was anticipated, as there were signs of a slowdown setting in, especially in retail credit. Going forward, this is not likely to be a trend. The growth for the remaining part of the year will be in the range of 8-9%. Manufacturing will remain sluggish compared to last year, especially in segments that depend on leveraged demand," said Abheek Barua, chief economist of HDFC Bank to NW 18.

July Manufacturing Growth stood at 7.2% vs 14.3% (YoY); July Consumer Durables output was down 3.2% vs growth of 16.1% (YoY); Electricity Growth stood at 7.5% vs 8.9% (YoY); July Mining growth stood at 4.9% vs 5.1% (YoY).

A Prasanna, Economist said that he is optimistic about August numbers but will have to march down full year numbers. He further said that the GDP guidance will not have to reduce significantly at this point. He maintains GDP growth estimates at 8.5%.

Shanti Ekambaram, ED & CEO, Kotak Mahindra Capital said that auto has shown slowdown but India story is fundamentally is still sound. Emerging markets have held much stonger in face of US situation and the liquidity in EMs is reasonably managed as of now.

She further said that we will be impacted by global factors but underlying fundamentals remain positive. With the busy season coming in, some amount of liquidity should come in. There could be some amount of stability in interest rate scenario. Infrastructure, ancilliaries, Financial Services and gradually consumer sectors should outperform, she believes.

	Jul-07	Jul-06
Total industry output	7.1	13.2
Mining	4.9	5.1
Electricity	7.5	8.9
Manufacturing output	7.2	14.3
of which
Basic Goods	9	10
Capital Goods	12.9	18.3
Intermediate goods	4.7	10.7
Consumer goods	5.3	16.8
of which
Consumer durables	(-) 3.2	16.1
Consumer non-durables	8.4	17.1

Following is a breakdown of output by sectors of the Central Statistical Organization's Quick Estimate of the Index of Industrial Production (Base Year: 1993-1994=100)

		2007	2006	2007	2006
	Weight	July	July	Apr-July	Apr-July
Manufacturing	793.58	7.20%	14.30%	10.30%	12.30%
Mining	104.73	4.90%	5.10%	3.10%	4.00%
Electricity	101.69	7.50%	8.90%	8.10%	6.10%
General	1000	7.10%	13.20%	9.60%	11.10%

India's long march from an agriculture-dominated economy at the time of independence to become the world's biggest back-office has taken the charm away from government jobs with salaries in private sector higher by as much as two times.

According to data available with salary tracking firm PayScale, the median annual salary in a private sector company currently stands at Rs 5,65,214 compared to Rs 2,45,745 in the government entities.

The scenario is a far cry from those at the time of independence, when in early 1950s various government departments were established and public sector salaries used to be among the most attractive.

Yet, today wages for some of the highest government offices -- including the President of India and Reserve Bank of India -- are lower than even mid-level executives at various private sector firms.

The initial salary of the President of India -- the constitutional head of the country -- was fixed at Rs 10,000 per month, which was considered to be among the highest for any office bearer at that time.

However, the President currently earns a monthly salary of just Rs 50,000, a level to which it was raised with effect from 1996, which pales in comparison to the lakhs being paid to senior level private sector executives.

Similarly, the RBI Governor used to get a monthly salary of about Rs 7,500 after independence, while the then Secretary and Treasurer of the Imperial Bank, now known as State Bank of India, was paid Rs 4,000 a month. In contrast, the biggest of private sector firms paid a salary of just about Rs 5,000 to their General Managers and Managing Directors making the government salaries much more attractive.

The Indian stock market, which is swinging to the US sub-prime woes, is relatively insulated to the defaults in the US credit markets,

Market experts see interest in Indian equities given the strong economic growth, robust earnings and rising domestic consumption.

They say India has a fundamentally strong growth story and fewer risk factors compared to economies such as China. In fact, Prudential Asset Management has moved up its India rating from underweight to neutral. "We may even go overweight on India depending on how significantly other markets underperform," said Guy Strapp, Regional Head of Investment Management Asia, Prudential Asset Management.

But US sub-prime defaults have triggered a selloff in domestic market by global investors. FIIs have been net sellers at over Rs 4,000 crore this month, and its impact is very dramatic on the benchmark index.

Consider the numbers: On July 27, the Sensex tanked by 542 points. A day after the monetary policy review (August 2), the benchmark index suffered the third biggest fall of 615 points.

On August 9, the index shed early gains to end down by nearly 208 points. There was no respite for the index even today as selling pressures dragged it down by 232 points. The view at home is more sombre.

"Indian markets are driven by the liquidity of global markets. Moreover, stock market is an indicator of future events and can not remain unaffected by global events. The sub-prime crisis is affecting funds particularly debt funds in the US and Europe, which indicates the state of overall fund management," said Pankaj Namdharani, Head-equities, SPA Securities. Several short term triggers that include the Bank of Japan meeting to be held in the third week of August and reports trickling in of global financial institutions' inability to allow redemption are likely to affect the US markets. Market watchers expect the effect on markets as a result of the subprime crisis to intensify post August 15 on the back of redemption pressures.

In order to withdraw money from hedge funds, a 45-day notice period is necessary to submit the application. So for the July quarter, July 1 to Aug 15 is the application period to withdraw serious money from a hedge fund. After August 15, people will probably queue up for redemptions in hedge funds.

"This may lead to a 'cascading liquidity withdrawal' syndrome across emerging markets. That has not happened yet, but if does, the stock prices can be under selling pressure across markets where funds have invested. There could be a lot of jitters in the overall hedge fund universe leading to contraction and pulling out of liquidity from the participatory notes front in the Indian markets," said Seshadri Bharathan, Director - Stock Broking, Dawnay Day AV Securities.

The US sub-prime loan market crisis is expected to temper cross-border mergers and acquisitions (M&As) as Indian companies go slow on acquisitions.

Lazard India's CEO and Managing Director K Balakrishnan said there will be a squeeze on the availability of funds for financing acquisitions. Also, the cost of borrowing will go up, making big buyouts difficult. " For example, if a company could get 6 times of its EBIDTA two months ago, it would now probably get four times of EBIDTA," he said.

Nimesh Kampani, chairman, J M Financial, said the lenders would be concerned about the financial strength of the borrower. "They (lenders) will be cautious about whom to lend," he said, adding that good Indian companies would continue to get loans in the US markets, albeit at a higher interest rates, till the problem stabilised.

N M Rothschild's CEO Sanjay Bhandarkar, however, said because Indian M&As were by strategic investors with healthy balance sheets and strong cashflows, they would suffer a lower impact than those done by PE funds in Europe and the US.

"It is true that there will be a short term impact on Indian M&A activities in the overseas markets. However, it is not sure how long will it continue. The big ticket deals, with non-recourse debt on the target company's balance sheet, may have to shell out more interest rates. But lenders will also take notice that Indian companies mostly do strategic buyouts. These financings may not have problems, "he added.

In the first six months of this year, India has witnessed M&A acquisitions worth $55 billion through 550 deals, more than the total size of transactions in 2006, according to the global consulting firm PricewaterhouseCoopers. Of these, the big ticket overseas acquisitions include Tata Steel's $13 billion purchase of Corus Group, Hindalco's $6 billion buyout of Novelis, Suzlon's $ 1.6 billion acquisition of REPower and Essar Steel's $1.5 billion acquisition of Algoma.

However, no one was sure about the extent of the impact. Lazard's Balakrishnan said the deals witnessed in the first six months of this year did not indicate the right picture as some big deals scaled up the total transaction size. N M Rotchschild's Bhandarkar said it would have a bigger impact if the equity markets tumble further.

However, an economist working with one of the large corporate houses, who did not wish to be named, sounded a cautious optimism. He said the situation being created in the global markets should better be called as "dynamic" rather than "unfavourable." And companies with global appetite and strong balance sheets can spring surprises in such dynamic situations, he added.

The head of equity of a foreign brokerage cited the example of Cadbury Schweppes, which had on August 1 announced to split its US drinks unit, Americas Beverages, on the back of instability in the US debt markets. Under the demerger, Americas Beverages would be listed as a separate company, with its shares given to Cadbury Schweppes shareholders. He said the split would create opportunity for potential strategic buyers, including Indians, having global ambitions, to bid for the assets which otherwise would have been beyond their reach.

It's clear that the problems in the US credit markets pose problems for Indian M&As. But it will take some time to say whether it throws surprising opportunities as well.

However, an economist working with one of the large corporate houses, who did not wish to be named, sounded a cautious optimism. He said the situation being created in the global markets should better be called as "dynamic" rather than "unfavourable." And companies with global appetite and strong balance sheets can spring surprises in such dynamic situations, he added.

The head of equity of a foreign brokerage cited the example of Cadbury Schweppes, which had on August 1 announced to split its US drinks unit, Americas Beverages, on the back of instability in the US debt markets. Under the demerger, Americas Beverages would be listed as a separate company, with its shares given to Cadbury Schweppes shareholders.

He said the split would create opportunity for potential strategic buyers, including Indians, having global ambitions, to bid for the assets which otherwise would have been beyond their reach.

It's clear that the problems in the US credit markets pose problems for Indian M&As. But it will take some time to say whether it throws surprising opportunities as well.

With an advance ‘score card’ in hand which shows that the economic track record of the United Progressive Alliance (UPA) would compare “very favourably” with that of the last four years of the National Democratic Alliance (NDA) regime, the Government has practically called a halt to any major economic reforms policy initiatives till the next general elections expected in early 2009.

Till then, the idea is to dig in and consolidate the achievements so as to project an unparalleled economic growth by the end of 2008.

Big initiatives shelved

Sources in the Government indicate that major economic reforms initiatives like raising the foreign investment limit in insurance, amendments to the banking laws to provide voting powers in proportion to shareholding, or large-scale public sector disinvestment have been as good as shelved.

Though these issues were to be thrashed out with the parties supporting the UPA Government from outside, Left party sources told Business Line that no discussions had taken place on these issues and no meetings have been scheduled e ither to take up these matters.

Government sources also confirmed that given the strong stand of the Left parties on these moves, there was little point in pursuing them.

Projections

The likely scenario, as envisaged in the internal assessment, projects that economic growth during 2004-05 to 2007-08 would average about 8.6 per cent per year against the average 4-year-period growth under NDA at 5.6 per cent. Even laggard agriculture is expected to notch 2.9 per cent average growth against the 2.2 per cent average of the NDA.

Projections also show that there have been more investments under its rule than that of the NDA. The gross domestic investment rate, a key driver of economic growth, averaged 25 per cent of the gross domestic product in the last four years of the NDA regime, but would climb to 33.6 per cent average during the UPA period.

On infrastructure, the note opines that “we are now in a position where sustained effort at implementation of the current year’s target would produce excellent results. By mid-2008, the UPA performance will look much better than the NDA in roads, airports, ports, railways and even in power (where massive additions to generation capacity will be put in place in 2007-08).”

Fiscal deficit

The other plus points jotted down in the report include an average fiscal deficit of 3.8 per cent GDP, much better than 5.6 per cent of the NDA’s, average export growth of 28 per cent plus, compared with only 15.2 per cent achieved during the NDA regime, and foreign direct inflows of an average $12 billion a year against the NDA average of $4.9 billion per annum.

Hit hard by the appreciating rupee, the country's export growth continued to slide in the second consecutive month of the fiscal to 14.05% in June. Export growth stood at 18% in May 2007 compared to 21% during the corresponding month of the previous fiscal. In rupee terms, exports touched Rs 48,386.49 crore, which was just 0.97% higher than the value of exports during June 2006.

In dollar terms, the country’s merchandise exports during June 2007 were valued at $ 11.86 billion, recording a growth of 14.05% over June 2006. Reacting to the deceleration in growth, the Federation of Indian Export Organisations (FIEO) has warned that worst was yet to come. Export growth may slip to a single digit next month if corrective steps are not taken, FIEO president Ganesh Kumar Gupta said in a statement issued here. The government announced an export package last month to mitigate the impact of appreciating rupee which the exporters feel is not enough.

Cumulative value of exports for April-June 2007 was $ 34.30 billion against $ 29.044 billion during the same period last year. The country’s imports during June 2007 rose 36.68% to $ 19.19 billion compared to $ 14.044 billion in June 2006. In rupee terms, imports increased 21% during the month. The cumulative value of imports for April-June 2007 was $ 54.908 billion against $ 40.88 billion during the corresponding period of the previous year.

Oil imports during June 2007 were valued at $ 5.66 billion — 9.85% higher than oil imports in June 2006 at $ 5.157 billion. Oil imports during April-June 2007 were valued at $ 14.83 billion, which was 4.21% higher than the oil imports of $ 14.23 billion in the corresponding period last year. Growth in the oil import bill was moderate due to stronger rupee.

Non-oil imports during June 2007 were estimated at $ 13.53 billion, 52.25% higher than $ 8.887 billion recorded in June 2006. Non-oil imports during April-June 2007 were valued at $ 40.078 billion, a growth of 50.36% over $ 26.654 billion in the corresponding period of 2006-07.

The trade deficit for April-June 2007 was estimated at $ 20.605 billion, which is higher than the deficit during April-June 2006 at $ 11.841 billion.

Finance Minister P Chidambaram on Tuesday said it is possible for the country to achieve a 10 per cent economic growth in the next financial year.

"Achieving a 10 per cent growth in 2007-08 is tough, but it is possible in 2008-09. That will be a fitting finale for the UPA government's five-year tenure," Chidambaram said while addressing the India Policy Forum here.

The country's GDP grew 9.4 per cent in 2006-07 and as per the Economic Advisory Council to the Prime Minister, it is poised to achieve a 9 per cent economic growth in the current fiscal.

The Reserve Bank of India (RBI), however, in its Annual Policy statement has projected GDP growth rate of 8.5 per cent for 2007-08.

Chidambaram said it would be possible to push up the economic growth by improving the performance of agriculture, which is stagnant for the last nine years.

Commenting on the comparisons which economists make between India and China, Chidambaram said the country's 9 per cent GDP growth rate compares well with 10-10.5 per cent growth rate of China.

He said the country's growth rate vis-a-vis China was not bad in view of the fact that it had to adhere to democratic norms and generate consensus, evolve laws and endure criticism before moving forward.

Do not rejoice yet at the prospect of the country posting over nine per cent growth in the current fiscal, as some economic think-tanks have revised their growth projections downwards to 8 per cent-8.5 per cent region on grounds of high interest rate and global slow down.

Rating agency Crisil cites the hard interest rate as the main reason for its lower estimate of 8.4 per cent.

"The increasing interest rates would be the main reason behind the slow down in growth rate. International factors, including slump in the US and China, would also affect the domestic growth," Crisil Chief Economist Subir Gokarn said.

Another economic think-tank National Council of Applied Economic Research (NCAER) has further lowered the projected growth rate at 8.3 per cent.

It anticipates a slump in all three major sectors - agriculture, services and industries.

The growth in agriculture would be affected because of the expected less than normal rainfall.

NCAER projects 9.9 per cent growth in the services sector as against 11.2 per cent in the last fiscal. Exports growth in May has slowed down to 18.07 per cent from 23.06 last month Industry body CII says the growth rate would be only 8.5 per cent owing to a decline in demand in the global and Indian economy, rising inflation and increasing interest rates.

Rupee appreciation and a demand-supply gap in the domestic and global economy can also lead to a decline in the growth rate, the chamber said.

The central bank`s raising the cash reserved ration (CRR) for banks three times in last December, as a part of its measures to contain rising inflation rate, would also impact the growth rate, the chamber added.

A recent research note by Rob Subbaraman, chief economist for Asia at Lehman Brothers, explores the relationship between the equity markets and real economy in Asia. Subbaraman says equity prices can affect the real economy in four ways: by making households feel richer, as the value of their equity holdings rises, and this ‘wealth effect’ then spills over into higher consumption; by increasing business confidence; by increasing borrowing capacity by raising the value of assets pledged as collateral; and by raising the market cap of a firm relative to the replacement cost of its current assets (a factor known as Tobin’s q) which will induce entrepreneurs to add capacity.

Subbaraman finds that the state of the equity markets is important for the economy in only four Asian economies—Korea, Taiwan, Hong Kong and Singapore. For India, the correlation is not significant. That’s hardly surprising, since equities make up only a 4.3% share of Indian household financial assets, compared with 29% in Singapore, 22% in Taiwan and 19% in Korea. What’s interesting is that Subbaraman argues that if the frenzy in Shanghai continues, the share of equities in Chinese household financial assets will jump from 4.5% in 2005 to 8.7% by the end of this year. China’s market will then “no longer be a sideshow for its economy”. When that happens, global markets won’t be able to shrug off the dramatic swings in the Chinese stock markets quite so blithely.

There is plenty of research that points to the importance of deep financial markets for economic growth. Unfortunately, the empirical evidence is hardly supportive. China, for instance, has managed to sustain a blistering pace of growth with very underdeveloped stock markets. Earlier, South Korean and Japanese growth too did not depend on the health of their stock markets. But while the secondary market may not have an appreciable impact on the economy, surely the primary market does, through IPOs and follow-on offers?

Indian companies raised $7.23 billion (Rs29,643 crore) from the domestic capital markets last year, or around 7.5% of the increase in non-food bank credit during the year. And China’s raising of $56.6 billion from global markets last year certainly had an impact on its economy, as it’s a significant proportion of its bank credit growth. More interesting, however, is the impact of economic growth on stock prices. One of the main reasons for the attraction of the Indian market lies in the high growth rates for the economy, which leads to higher corporate earnings. That’s the reason investors from all over the world are pouring their money into Indian equities.
Could they be mistaken?

Economists researching the subject have argued that high economic growth is by no means a guarantee of high stock returns. A study by Jay Ritter of the University of Florida on ‘Economic Growth and Equity Returns’ found: “It is widely believed that economic growth is good for stockholders. However, the cross-country correlation of real stock returns and per capita GDP growth over 1900-2002 is negative. Economic growth occurs from high personal savings rates and increased labour force participation, and from technological change. If increases in capital and labour inputs go into new corporations, these do not boost the present value of dividends on existing corporations.” “Countries with high growth potential do not offer good equity investment opportunities unless valuations are low.” Historically, says Ritter, much of economic growth has come from infusion of capital into new firms, a conclusion that ties in with the large number of IPOs by Indian and especially by Chinese companies.

As US finance guru William Bernstein has pointed out, “The bad news is that if a nation’s economy grows at x% per year, per-share earnings and dividends do not also increase at x% per year—they increase at (x% - y%) per year, where y% is the amount of share dilution.” Also, in a competitive economy, the benefits of technology are usually appropriated by consumers. A couple of years ago, a study by ABN Amro Bank and the London Business School found a negative relationship between per capita GDP growth and stock returns between 1,900 and 2004 for 17 countries.

Professors Elroy Dimson, Paul Marsh and Mike Staunton of London Business School, commented: “Investors who allocate assets to countries with high expected GDP growth do not, on average, achieve superior returns. Historically, buying into equity markets with a high GDP growth rate has given a return that is below the return of markets with a low GDP growth rate”.
So why do investors continue to flock to emerging markets?

Here’s the answer: Over the period 1951-1980, the period which marked the phenomenal rise of Japan, the Nikkei rose from 102 to 7116, a rise of 6,876%. Over the same period, the FTSE all-shares index rose from 41 to 292 and the Dow from 235 to 964, increases of 612% and 310%, respectively. But perhaps taking 1951 as the base is not right and the rise reflects Japan’s recovery from the destruction caused by the World War. Well, even if we take the two decades between 1961 and 1980, the Nikkei went up by 424% over the period, while the FTSE and the Dow went up by 186% and 56.5%, respectively. At least so far as the Japanese experience is concerned, rapid economic growth did result in superior stock market performance.

source: mint

China has provided the Western world with one more reason to feel beholden to it despite uneasiness over a variety of issues, including human rights. In the latest move, Chinese insurance companies have been allowed to spend a whopping $35 billion to buy up equities, bonds and derivatives in the London and New York market.

The Chinese fund tap might eventually result in a capital outflow exceeding $100 billion into the world’s financial markets as the nation’s banks are preparing to invest a portion of their assets overseas.

The first signal has already come from the China Banking Regulatory Commission, which recently allowed domestic banks to invest in Hong Kong stocks on behalf of their wealthy clients. CBRC also dangled a carrot at the world markets by announcing that it will let the banks invest in other foreign markets as long as the concerned regulators signed a cooperation agreement with it.

Negotiators in western countries dealing with Beijing have increasingly become aware that China controls one of the major taps of global capital flows emanating both from its industrial and financial industries. The Chinese government has indicated it is keen on financial investments in world markets as a means of extending its influence beyond world governments and into the markets. It recently set up an investment company, which announced plans to invest $3 billion in the US based private equity firm, Blackstone.

In the latest move, the China Insurance Regulatory Commission has permitted local insurance companies to put their money in equity, bond and derivative markets overseas. To begin with, the regulator will permit them to invest in “mature markets’’ like London and New York later this year before letting the insurers to explore other markets in the world. Insurers would be allowed to invest 15% of their total assets, which stood at $2,574 billion by 2006- end, in overseas financial products.

The decision will lead to the release of $39 billion for investment in London and New York. Most insurers are expected to avail of this golden opportunity as they have been hamstrung by limited investment opportunities and consequently low return on investment at home.

CAPITAL CONTROL

The China Insurance Regulatory Commission has permitted local insurance companies to put their money in equity, bond and derivative markets overseas

Insurers would be allowed to invest 15% of their total assets, which stood at $2,574 billion by 2006- end, in overseas financial products.

TOI

India's FY07 GDP growth accelerated to 9.4% Y-o-Y, up from 9.0% Y-o-Y during FY06. Growth was higher than both our and street expectations of 9.0% Y-o-Y. Industry and services continued to be the drivers for growth, both showing a double digit growth. Agriculture grew at trend level.

Q4 GDP growth was at 9.1% Y-o-Y a tad lower than our estimate of 9.2% Y-o-Y and the street estimate of 9.5% Y-o-Y. Q4 growth accelerated in comparison with Q3 growth of 8.7%, but was lower than the Q4 FY06 growth of 10%. Growth for Q4 was at 11.2% Y-o-Y for industry and 9.9% for services, while industry growth accelerated, that for services decelerated from Q3. Agriculture provided an upside in Q4, with a growth of 3.8% Y-o-Y, up from 1.6% Y-o-Y during Q3.

Component wise break up for industry in FY07 indicates that three segments - mining, manufacturing and electricity strengthened, while construction showed a dip. With respect to services, 'trade, hotels, transport and communication' strengthened significantly, while financial services was a tad lower and community, social and personal services' was stable at the previous year's levels.

The upside on FY07 numbers and strong Q4 numbers suggest that the Indian economy stays strong. It reflects little impact of (a) monetary tightening so far and (b) some signs of softening in the global economy. We expect firmness in growth to continue into FY08 as well. If strength in credit growth and industrial production numbers is reflected in Q1 FY08 as well, it would call for an upward revision to our GDP growth forecast of 8.2% Y-o-Y in FY08.

GDP break up

Note: Figures for FY07 in blue denote strengthening from FY06, while figures in red denote weakening

Source: CSO