Friday, September 28, 2007

Awash in liquidity

The rise in the Sensex beats anything we have experienced in the recent past. I mean, we are supposed to be in the midst of a serious international financial maket crisis. Some think the probability of a US recesssion is still pretty high and that global economic growth will be dragged down in consequence.

If the Sensex has taken note of these, it's not showing. For some reason, funds continue to pour in. The statistics I saw on TV are: FII inflows of $1 bn in the past week, net inflows of $ 3 bn in September. And the best annual score thus far has been around $10 bn!

Deepak Parekh was on one of the channels a couple of days ago. He suggests that whole new classes of investors are waking up to India: US insurance and pension fund investors (as distinct from mutual funds and hedge funds, thus far the prominent US investors in India), Japanese retail investors, the newly set up sovereign wealth funds. Then, you have huge oil surpluses looking for alternatives to US and Europe. A tiny percentage allocation to India turns out to be a flood so far as we are concerned.

The biggest surprise to me is the rebound in IT stocks. I thought they were headed relentlessly southwards in the wake of an appreciating rupee. But, this week, the stocks are up again. I asked a street corner broker whether he had an explanation. He said Infosys' Nandan Nilekani had indicated on TV from New York that Infosys was in a position to weather the impact of the rising rupee. That did the trick this week. Whether this will last we will know when the first quarter results start pouring in from October 5.

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