India is one of the fastest-growing areas of the business world and has tremendous potential for exponential growth.
What has made India more appealing than the inherent strength it possesses is the fact in the past few months, India was singled out unfairly and the rupee and the stock market were punished severely.
All of that is now changing. I am watching some amazing gains in just the past few weeks.
For example, the Indian rupee has appreciated by nearly 8 percent since Dec. 15. The Indian stock market (Dalal Street) has increased value by nearly 12 percent since Dec. 20.
I started writing about the flashing signs of resurgent growth of Asia and India on Dec. 21 and since then. I don’t claim I can call the bottom of a market but the signs were all flashing when the Reserve Bank of India (RBI) finally awoke from its slumber and changed the rules of the game.
Meanwhile, the RBI has changed its official rate-hike cycles to one of rate easing. In simple English – the RBI has started dropping interest rates.
Today, they announced the first of the cuts. And they have done it very intelligently. They have dropped the reserve ratio that banks have to maintain with RBI. The RBI has ensured that about $6 billion of liquidity will get pumped into the markets allowing banks to lend more to companies. The next step will be to reduce the main lending rates at which they lend to banks and that will ensure borrowing rates to corporate and individuals come down as well. That is expected in March.
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While they have reduced the growth rates from 7.6 percent to about 7 percent for the year, it still means that the overall GDP will grow by a reasonable rate for this year. The drop of rates also ensures that the tracks are being greased for an excellent 2012-2013 year.
The factor that has allowed the RBI to change direction is the drop in inflation rates in India. The RBI now expects moderation of the inflation rates and can now focus on growth and employment.
The Indian rupee which had traded as low as 54.3 to the dollar is now trading at about the 50 to the dollar. And the expectation is the moderation of the rupee and further appreciation as monies now flow into India for investing and trading.
One recent announcement does worry me though. Last week, India signed a bilateral agreement with Iran to start trading in non U.S. dollars for the trade between the two countries. While this would be negative for the dollar, this would be good for India. What bothered me is the announcement that India would buy oil from Iran and pay for it in gold.
That is a twist and unexpected, I hope the Indian government realizes its mistake and decides against such payment forms. This isn’t the time to expend the gold reserves it has created over the past few years. In my opinion, that would be a mistake.
In any case, there are some exciting times to come in India. I hope you took my advice and sent some of your investment dollars to India. If you haven’t, it isn’t too late.
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