Expert underplays subprime impact

The subprime crisis in the US had a negligible impact on the Indian markets, and the subsequent liquidity was the impact of "irrational fear" among investors, said R Ravimohan, managing director and region head, South Asia, Standard and Poor's.

However, the markets were headed towards a correction by the end of the second quarter ending September 2007, he warned.

This was mainly because corporate earnings might decline in the quarter, resulting in selling.

However, by October the markets would regain normalcy, he predicted.

Further, delinquency rate for housing credit, which is around 1 per cent at present my double up in the coming month due to internal market conditions, he said.

"Once more there will be a big bump when the 30th September quarter ends, as the fixed income equities will take a hit. Subsequently, there will be a reallocation of capital, with strong domestic investment and equity raising will be strong," he said.

Thus, this was not the right time to raise capital in the money markets, he added.

Ravimohan said foreign funds would see an increased fund flow after October and the rupee would not depreciate beyond Rs 40 against a dollar.

Even though the US markets did not affect Indian markets, the 20 per cent foreign participants had unduly influence on them , as domestic players were ignorant about market movements.

"Even though we have linkages with the global market, the influence is less. Outside influence in India is disproportionately high, but that could be balanced by the Indian influence outside," he said, adding, "We need to have a good balance between different forces that operate the market, so that we a right price discovery mechanism. Then we will have a truly liquid market."

Also strong domestic fund participation could allay the fear of FIIs withdrawing from the Indian markets.

Excess government regulation was harming the market as 90 per cent of Indian moneys was under government control in one form or the other. Market regulators "�RBI, SEBI and IRDA- were still conservative in approach.

The fact that international individuals were still not allowed to participate in the Indian markets was a restrictive policy. Even though Indian accounting standards were at par with the US, and more transparent than them, its market size was relatively small.

"Indian markets are qualitatively good, but quantitatively poor," he said. Ravimohan was addressing the Millennium Mams, an organisation to teach investment basics to individuals.