Indian mandarins seek to calm markets after US shivers (Roundup)

August 8th, 2011 - 6:59 pm ICT by IANS  

Pranab Mukherjee New Delhi/Mumbai, Aug 8 (IANS) Indian policymakers Monday sought to lift the investor sentiments, sullied by the ratings downgrade of the US economy, with assertions that the domestic fundamentals remained strong and resilient enough to ensure robust growth.

“It may be noted that in the worst phase of the recent global financial crisis, the economy grew by 6.8 percent, suggesting high resilience emerging from domestic factors,” the Reserve Bank of India (RBI) said in a statement.

“While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact,” the apex bank said, cautioning: “As Friday’s market behaviour demonstrated, India is not insulated from such developments.”

The statement came almost in tandem with another by Finance Minister Pranab Mukherjee, more or less on similar lines, who even said India may benefit on account of the US crises with greater inflows from foreign institutional investors.

“The recent developments in the US and the Eurozone have injected certain uncertainty in global markets. These developments could have some impact on India,” he said , adding: “We are in a better position than many other nations to manage the challenge.”

He also promised action to tide over the crises such as supporting domestic consumption to drive growth. “The government will also fast-track the implementation of pending reforms and keep a close eye on international developments.”

He even went on to suggest that there could be a softening of global crude prices that could have a soothing effect on the India fuel prices, and help cool overall inflation in the domestic front.

These remarks appeared to have a sobering effect on the stock markets at least, which saw a key index end the day with a loss of 315.69 points, or 1.82 percent, after falling nearly 550 points, or 3.15 percent, at one stage intra-day.

“To begin with, the cues today were negative for the markets. The Hong Kong market was down 3.6 percent when the Indian markets opened,” said Sanjeev Zarbade, vice president with Kotak Securities said. “It is likely to be an eventful week.”

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange had opened Monday at 16,907.57 points, against the previous close at 17,305.87 points, and dipped soon after to 16,759.45 points, on fears of another downgrade of the world’s largest economy.

Even as it gained considerable ground subsequently, inherent fears remained.

“There is a fear that investor moving out of US treasuries could move with commodities like crude oil, copper, iron ore, which would result in a spiking of these prices,” said the Federation of Indian Chambers of Commerce and Industry.

“This could worsen the global inflationary scenario.”

Yet, the industry chamber remained positive on a 8-percent growth for India this fiscal, mainly on account of high savings and investments, as also buoyancy in domestic demand, which could get a further push with better fiscal management and reforms.

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