'Indian economy unmoved by reforms'
The slowing Indian economy is not responding to shock therapy. The stock market rally that began in September after the government unveiled its high-decibel reforms programme is fizzling out.
The country's benchmark index failed this month to surpass its October peak - a bearish sign for chart watchers. The rupee has weakened 7 percent since Oct. 4.
In some ways, the Indian selloff mirrors the fate of risky securities globally. The MSCI Emerging Markets Index is now lower than when the Federal Reserve launched its third round of quantitative easing on Sept. 13.
Fears of untimely fiscal cutbacks in the United States and a deepening of the sclerosis in the euro zone are weighing on sentiment. But skittish investors are only one part of the story. A much bigger challenge for India is the deteriorating financial cycle. A Breakingviews analysis of 16 years of monthly bank loan data shows that - after stripping out trend growth and seasonal fluctuations - the cyclical downturn in credit that began in early 2008 is yet to level off, let alone begin a recovery.
That's hardly unusual. Financial downturns tend to last several years, while a typical business cycle recession tends to be over in about 12 months, according to a study by Bank for International Settlements researchers Mathias Drehmann, Claudio Borio and Kostas Tsatsaronis.
In a bank-dominated financial system like India's, the lending and borrowing cycle is of particular relevance to investors. The benchmark Nifty equity index more than quadrupled during the credit boom that began in late
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