FE Editorial : But markets unmoved

Despite the economy having slowed further, the rupee weakening and earnings below expectations, India was among the top performing markets of 2012. Much of it, of course, had to do with the easy money policies of central bankers across the globe, a stance that left markets with abundant liquidity and fund managers in a ‘risk on’ mode for most of the year. Nonetheless, India seems to have attracted more than its fair share of flows—foreign investors lapped up stocks worth $24.5 billion, the second-highest ever in a year. While the proposed introduction of GAAR caused some concern in March and April, subsequent events—a new finance minister in P Chidambaram—and the promise of reform and rate cuts prompted fund managers to up their weightages. As did the fact that the market was slightly under-valued compared to the historical average.

With the winter session of Parliament having been fairly fruitful, there’s greater conviction now that economy and earnings are troughing out—a hike in agriculture growth in FY14 will alone add around 0.5 percentage points to GDP. Much, however, depends on how well the US resolves the fiscal cliff issue and what repercussions this has on a debilitated global economy. Sluggish exports are already hurting the economy—the latest CAD, at 5.4% of GDP, is ample evidence of this—even as crude oil prices remain close to the $100 mark, keeping the import bill high. So, macroeconomic headwinds haven’t quite receded and will not until there’s meaningful reform—sharp

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