The Hindu Business Line : Market View

The slowdown in the US housing market is being seen by many as a lead indicator of a possible slowdown for the US in 2007. Housing has been the prime driver of economic growth in the US in the last five years, and there is little evidence of any other economic activity gaining in strength and size to make up for the evident fall in the housing market.

There are some who believe that consumer spending could increase and so could business investments, but there is no evidence yet to show that this is indeed happening. The decline in the housing sector has been severe and rapid, and has raised concerns that the much-expected soft landing for the US economy may be threatened if the housing meltdown is more severe than expected. The Fed decision to hold back any change to interest rates, for the second time seems to have come from the new data on housing, more than the reduction in oil prices.

OptiMix View and Outlook

Indian companies continue to show increased willingness to take risk. The Tata group, through its acquisition of a 30 per cent stake of America's Energy Brands for $677 million in the largest cross-border acquisition by an Indian private sector company, reflects Indian entrepreneurial skills translated into newfound aggressiveness. With corporate balance sheets saddled with cash, and the ability of Indian companies to raise money efficiently and quickly, we expect more global acquisitions.

Kotak Mutual

Risk arising from global factors remains, as the Indian market is still dependent on continuation of FII inflows. If interest rates keep rising further globally, then liquidity squeeze and risk aversion can affect flows to global equities and FII inflows into India. On the other hand, if interest rates were to stop rising, it could mainly be due to expectations of a slowdown in economic growth, which may also not augur well for global equity markets.

However, in such an eventuality India should be comfortably placed as India is a large domestic demand driven economy and is comparatively less dependent on global growth.

Chola Mutual

Considering long-term inflation expectations of around 4-5 per cent and also looking at rates prevailing in rest of the world, Indian bond yields at 8.5-9 per cent offer decent risk premium. We expect RBI to increase repo rate by another 25-50 bps over the next few months; however, the yield curve is steep and already pricing in that.

Birla Sun Life Mutual

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