The US financial markets could witness another round of correction in the beginning of October with a rub-off effect on the Indian financial market, Standard & Poor said on Wednesday.
But the good news for domestic investors is that the correction could be followed by a relocation of global capital and greater inflows to the Indian bourses, according to Ravi Mohan, South East Asia head of Standard & Poor?s.
?At the end of the September quarter, global financial institutions holding fixed income securities would change the valuation of the papers from the held-till-maturity basis to mark-to-market basis. This would imply a loss to them as spreads have widened and prices have fallen. To offset the losses, we my see some selling in the equity market,? Mohan warned.
Speaking to FE on the sidelines of a talk hosted by Millenium Mams, Mohan said there is a silver lining for local bourses, as the subsequent relocation of capital would benefit them.
?We expect foreign inflows to recover in October,? he said. Mohan, who is also managing director of S&P India, downplayed any impact of the US sub-prime crisis on India?s real economy.
?We at S&P have been shouting from the rooftops that it is not a housing market crisis but a liquidity crunch as the call money market became illiquid,? he said.
Mohan said there is a need to promote the views of domestic institutional and individual investors to ?insulate? the market from the behaviour of the foreign institutional investors (FIIs), which have an impact disproportionate to their control of only 20% of the equity market.
?It?s only because of their visibility that whenever the FIIs catch a cold we sneeze,? he said.