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Inflation,Interest Rates and Corruption Triple Whammy Kill Indian Stocks

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India’s Stock Market has been amongst the worst performing market in the world in 2011 due to a number of converging issues.While Inflation and Interest Rate Increases are common themes hitting emerging market stocks,corporate governance problems are providing the icing on the cake for bears.Yesterday,stocks of the Anil Ambani Group (ADAG) fell by a bone chilling 15-20% on news that India’s accounting body ICAI has asked for accounts from 2 of the group companies Reliance Communication and Reliance Infrastructure.While no wrongdoing has been proved yet,it goes to show the low trust in company management.Note the promoters and directors of this Group had recently paid a massive amount in penalty to SEBI for insider trading charges.2 of the companies had also been barred from capital market operations.This had already had hurt the stocks and this proved to be the last straw.The Group Leadership is now blaming “Bear Cartel” for the woes which seems a bit laughable considering that they were charged with insider trading themselves.

Indian Infrastructure which were trading at nosebleed valuations of 30-50 P/E in 2008 have also got hurt hard crashing by 30-50% in the recent correction.Lack of execution on projects,high interest rates,rising wages,bad management has all contributed to their performance as investors lose confidence.Some of the companies like Punj  Lloyd and Lanco gave results far lower than expectations.The entire darling infrastructure stocks which could do no wrong have become lepers overnight.Read more of this in this entry.

Indian market ‘a victim of its own success’

The Bombay Stock Exchange Sensex Index tumbled to close on Monday at 18,307 points, down about 14 per cent from a record high of 21,005 last November. Concerns about rising interest rates, corruption scandals and climbing oil prices have prompted many foreign money managers to look elsewhere.

The decline in the Indian stock market is part of a wider shift out of emerging markets. Over the past four months, Indian, Brazilian and Chinese stocks have lagged behind stocks in the developed world as rising food prices and mounting pressures for higher wages fuel worries that these countries will have to raise interest rates to restrain inflation, a move that could put the brakes on their economic growth.


Abhishek Shah

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