These are, as the Chinese put it, interesting times. The IMF's latest update shows the second half of the year is going to be a lot worse globally, as the US financial crisis is still far from winding down and there is a distinct possibility of the crisis spreading to Europe as housing prices there are also collapsing. With bank earning models no longer as robust and their shares in free fall, raising equity to finance the writedowns is likely to get a lot more difficult. The global financial crisis, coupled with a sharp slowing in earnings in India, has seen FIIs exiting, further exacerbating the stock market outlook. Despite the earnings slowdown, however, Indian companies look in good shape — they have reduced energy intensity and have low debt-equity ratios. Higher interest rates in the country aren’t controlling inflation, but are making borrowing more expensive and are depressing the stock market further. If this carries on for a while, investment, which has driven GDP growth so far, just has to get affected. Softening of global oil prices is the one silver lining. Interesting times.
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