The Hindu Business Line : Market View

Even if GDP growth slows, as it will, in FY09, by about one percentage point or a tad more, the outcome may not be a major negative from an economic perspective; This lower rate is going to be a high base created by average GDP growth of about 8.5 per cent over the past five years. Earnings growth of India Inc was heading towards the mid-teens territory in any case and this has been priced in by markets on a broad basis though stock-specific impacts tend to be nearer or post event depending on degree of surprise. Unless oil prices stay put at $130-plus levels or higher, we could expect a gradual improvement from FY 2010, as supply constraints ease in several manufacturing sectors. The RBI’s battle against inflation since mid-2006 has ensured that India entered the current phase of rising inflation from lower levels; else, we may well have already been in the grip of double-digit inflation. This aspect may be crucial in moderating the magnitude and period of tightening. If the commodity prices cool, that could temper expectations of inflation and ensure that monetary tightening is not a major factor. A corrective phase in commodity appears likely given the increasingly narrow nature of the market. This may provide a respite from the pressure points from a macro-economic perspective.

SUNDARAM BNP PARIBAS MUTUAL FUND

Uncertainty to persist

Clearly the markets that outperformed during 2007 have been impacted by the increased risk premiums across the globe, as investors worried about the impact of sub-prime issues on the financial sector and broader economy in developed markets. The surge in commodity and energy prices has been on the back of investor activity and worries about the demand-supply situation. At this stage, there is no clarity if the worst is over for the global financial sector and the extent of slowdown in economic growth. However, the Asian region has exhibited resilience so far helped by increased intra-regional trade and domestic consumption.

As in the past, higher energy prices are likely to impact global economic growth and thereby demand. Recent developments point to possible political intervention in the commodity futures market, if the prices move up further. While interest rates in developed economies have been easing, latest economic data and inflationary worries have led to expectations of a stable/tightening monetary policy. Developments in the financial sector along with economic data, will weigh on investor sentiment.

FRANKLIN TEMPLETON INVESTMENTS

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