The Hindu Business Line : Market View

Even as shorter-term domestic concerns regarding interest rates and inflation persisted, the markets relented under global liquidity concerns as investors seemed to focus more on the bad news. The question really is — does this signal a healthy correction, amid signs of overvaluation, as investors book profits after the recent rapid gains? Or does this indicate a crack, which might lead to a further decline? We have been reiterating that markets tend to get sensitive at record high levels. It's not a bad thing to have a healthy correction as it provides an opportunity to correct excess valuations and allow people who have missed out to start buying. We believe that the market could regain confidence, since structurally, India story is skewed to an upside and the valuations have once again become attractive. It is too early to say that market has reached its peak. But owing to the global linkages between economies, we will have to wait and watch till clarity emerges on the global picture.

PruICICI Mutual

In the credit markets, the low and declining default rate has encouraged a strong propensity to take risk over the past few years. As a result, the growth in global liquidity has increasingly been funnelled into higher risk asset classes such as lower-quality investment grade corporate bonds, high yield bonds, emerging market bonds, collateralised debt obligations, real estate and equities. This trend further reduces the cost of capital to take on leverage, supports more leveraged buyouts (LBOs) and provides additional fuel for the equity market. In fact, LBO volumes have grown at an annualised rate of 64 per cent from 2002-2006.We have not seen such growth in corporate re-leveraging since the late 1980s. Given these conditions, it is no wonder the Federal Reserve is sounding hawkish. Accommodative financial conditions are providing a stimulus to the economy.

PIMCO bonds

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