Goldman Sachs Economists have cautioned The World against investing in India in The Short-Term. With high Inflation and Record current account Deficit, has Indian Economy Deteriorated so much?
IIn the summer of 2007, when the subprime crisis was yet to unravel and the world was still living with a happy boom mindset, two effervescent traders from Goldman Sachs, Michael Swenson and Josh Birnbaum, noticed something really strange going on in the global securities market. Whatever they saw, was enough for them to immediately call up their headquarters to urgently request the bank to short its mortgage-related securities. For a bank to take such a huge step based on the advice of just a handful of traders is rare; but not in Goldman, which puts its pound of flesh directly into the hands of its front line bankers. Goldman followed the duo’s advice to the tee. And the result – Goldman made a whopping $11.6 billion profit in the financial year 2007 with $4 billion emerging from its bet on the subprime collapse.
Three to four years down the line, Goldman Sachs again seems to be standing on a similar platform with another equally effervescent quasi-economist, their Asia-Pacific Chief Strategist Timothy Moe, putting forth another radical outlook. Leading a team of the bank’s strategists, and sitting plum in his ubér plush office at 85 Broad Street, New York, Tim portends that the bank is not going to be “tactically positive” on BRIC economies and that the “longer-term picture of Asia outperforming the US is taking a breather.” When Goldman Sachs’ strategists mention terms like “not tactically positive”, that is equivalent to “the nukes have exploded” in common parlance. More worrying from an Indian perspective, Tim has pointed out that India is a bigger issue for investors than China; and that both these nations would and should see a lower preference from investors than even nations like Singapore, Taiwan or South Korea. The problem is, when Goldman economists take out a forecast, the resulting melee is much like the who-came-first-the-chicken-or-the-egg situation. It doesn’t matter whether their forecast comes out correct; what would necessarily happen is that billions of dollars would see market shifts out of these two nations.
Lynch mob criticism aside, India itself has much to blame itself on. Owing to a resurgence in the wholesale price index for food articles (2.5% for the week ended on December 25, 2010), inflation has again hit the headlines in the country. Yet, beating worst of the expectations, year-on-year growth in over all WPI in India accelerated from 7.5% in November 2010 to 8.4% in December. Though a mind-boggling 70% rise in onion price and surging fuel prices were blamed to be the key reasons for the December inflation, there is no denying that the country has already been facing some of the strongest inflation in the Asia-Pacific region as surging output and soaring demand bump up against capacity and other constraints, fanning price pressures. RBI is certainly on its mis-foot toes to curb the pressure by clearly wrongly resorting to tightening of monetary policy.
Three to four years down the line, Goldman Sachs again seems to be standing on a similar platform with another equally effervescent quasi-economist, their Asia-Pacific Chief Strategist Timothy Moe, putting forth another radical outlook. Leading a team of the bank’s strategists, and sitting plum in his ubér plush office at 85 Broad Street, New York, Tim portends that the bank is not going to be “tactically positive” on BRIC economies and that the “longer-term picture of Asia outperforming the US is taking a breather.” When Goldman Sachs’ strategists mention terms like “not tactically positive”, that is equivalent to “the nukes have exploded” in common parlance. More worrying from an Indian perspective, Tim has pointed out that India is a bigger issue for investors than China; and that both these nations would and should see a lower preference from investors than even nations like Singapore, Taiwan or South Korea. The problem is, when Goldman economists take out a forecast, the resulting melee is much like the who-came-first-the-chicken-or-the-egg situation. It doesn’t matter whether their forecast comes out correct; what would necessarily happen is that billions of dollars would see market shifts out of these two nations.
Lynch mob criticism aside, India itself has much to blame itself on. Owing to a resurgence in the wholesale price index for food articles (2.5% for the week ended on December 25, 2010), inflation has again hit the headlines in the country. Yet, beating worst of the expectations, year-on-year growth in over all WPI in India accelerated from 7.5% in November 2010 to 8.4% in December. Though a mind-boggling 70% rise in onion price and surging fuel prices were blamed to be the key reasons for the December inflation, there is no denying that the country has already been facing some of the strongest inflation in the Asia-Pacific region as surging output and soaring demand bump up against capacity and other constraints, fanning price pressures. RBI is certainly on its mis-foot toes to curb the pressure by clearly wrongly resorting to tightening of monetary policy.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
