Readings: Capital inflows, Beijing slowdown, LIBOR loans
- Morgan Stanley: Capital Inflows – A Critical Macro Link
India received an average of US$10 billion per annum between 2000 and 2002. During 2003-05, capital inflows more than doubled to an average of US$21.3 billion, followed by an increase to US$38.5 billion in 2006 and to US$98.3 billion in 2007. We believe that capital flows have been the anchor of the self-fulfilling virtuous cycle of higher capital flows – an appreciating exchange rate – lower interest rates – strong domestic demand growth.
. . . capital inflows on an annualized basis slowed to US$30-35 billion in April-August 2008. India has seen portfolio equity outflows of US$4.3 billion from April to August 2008, in line with the emerging markets . . . FDI inflows into emerging markets and India tend to lag the portfolio inflows by a year. A large part of the rise in FDI inflows into India was in the form of private equity inflows, real estate and acquisition of equity stakes in Indian companies by multinationals.
We expect private corporate capex, which has been the key component of investment growth acceleration over the last two years, to be hit badly over the next 12 months.
- Peterson Institute: Beijing Slowdown
China’s expansion in 2003–07 was supercharged by a rapidly rising global trade surplus, propelling growth to a peak of 12.6 percent in the second quarter of 2007. But the external contribution to China’s growth is now waning as growth slows in its main export markets.
In addition, domestic investment is slowing due to a softening property market. Property price appreciation is slowing markedly as sales have plummeted since January, a possible harbinger of absolute price declines.
The combined effect of weaker external and domestic investment demand already has pushed China’s growth rate down to 10.1 percent in the second quarter this year.
- Economic Times: Cos with loans at dollar-linked LIBOR likely to take a hit
. . . companies that had pegged their loans to dollar-linked LIBOR are likely to take a hit on their earnings in the upcoming quarterly results. The list includes many high-profile companies like Reliance Communication, Tata Steel, Sterlite Technologies, Ballarpur Industries, Aban Offshore and Tata Chemicals.
“We expect a negative impact of 0.1% to 4.4% (100-bps rise) on FY09E (estimated) EPS (earnings per share) and a negative impact of 0.1% to 3.8% on FY10E EPS on companies under our coverage, which have taken LIBOR-linked loans,”
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