Attractive returns despite interest rate uncertainties
Unlike 2012, where domestic investors for a major part of the year were left to worry about India’s vulnerable economic situation, 2013 has started off with a measured feeling of hope and optimism. The announcements of reforms in the last few months have been a big positive; however, the successful execution of these would drive sentiments and markets. In January, we again witnessed a string of actions from the government. In a decisive move to contain oil subsidy burden, the government announced a calibrated hike in retail diesel prices and one-shot hike in bulk consumer sales at market rates. Secondly, to control gold imports, the government announced a hike in import duty from 4 per cent to 6 per cent with immediate effect.
These measures are an attempt to lower risks from twin deficits — fiscal and current account, which clearly rank as top priorities for India’s policy makers. The combination of cheaper credit as a result of lower interest rates coupled with a conducive policy environment is expected to kick start the domestic investment cycle and this should be well supported by foreign
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