The Hindu Business Line : Market View

Of special import is the central bank's comment on inflation, its relationship with growth and the monetary policy response to both. Clearly, growth is desirable and RBI acknowledges this. The economy's ability to grow sustainably depends on adding capacity quickly, a phenomenon we are witness to and an activity that is welcome. The short-term impact of capacity creation, however is in the form of increased "aggregate demand", which is inflationary in nature. This short-term increase in inflation is something the RBI, like all central banks, frets about. The quarterly policy review statement even lays out the reason for this, calling inflation a tax on the poor, and something that the poor need to adjust to immediately, but do not have the capacity to do so. The central bank, thus, has to do a tight-rope walk in creating conditions for maintaining the growth momentum while at the same time curbing inflation, which has a deleterious impact on a large segment of the population.

Sundaram BNP Paribas Mutual

Another key feature of the month (January) was the S&P upgrade of India's sovereign rating to Investment Grade. There was no unusual buoyancy in the stock market on this news. Perhaps it is because there was a sense that S&P is behind the curve. The massive foreign investment in India, both portfolio and FDI, in the last few years is an affirmation of free market's recognition of India's improving economic prospects. Moody's and Fitch already had India in the Investment Grade. However, while the short-term reaction of the stock market was muted, the long-term implication of such a move can be significant and long lasting. A lot of pension funds, which connote more stable and long-term money are yet to come to India, as they were in the past constrained by the investment rating of the country. Since India's sovereign rating is now Investment Grade by all the three leading rating agencies viz. S&P, Moody's and Fitch, a lot of pension money would now become eligible to invest in India equities and could start to look at this option seriously, which augurs well for the Indian stock markets in the long term.

Tata Mutual

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