The Banking and Strategy Initiative

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India Morning Report: Why some rating agencies get ‘brand mileage’ from obscure imperfections and markets rest..

Let’s face it. Any null hypothesis you can think of about the market’s strength or in S&P’s case (as rating agency) and that of even a few (investors)who believe in India’s fundamental turnaround from here (6130) to be of limited capacity which is most of us, a ‘need for caution’ or ‘continued weakness’ are dependent on  the thinking that there being a finite supply of money flowing to markets esp defined assets and market segments (“emerging Markets” in this case) . In the current global scenario even as Gold and Silver sharply ticked back yesterday matching the direness of US markets in face of a withdrawal of liquidity, there is (sic!) still a question of being shallow by insinuating such limits to money supply. However, investors are pretty satiated after Nifty 50 here hit near 6200 levels and is coasting this week at 6150. The reason is a ‘wait for’ and a relative ‘comfort in the knowledge’ that enough erstwhile underweight sectors are being rerated to absorb new inflows from FIIs in the near future whether in infracos or private banks. And similarily the reason for the markets again perpetrating the illusion of the state of rest is that investors being choosy cannot be easily swayed by ‘stories’ like Sun Tv or even more obscure ones like Adani Power I unfortunately forgot to remember from the traders that follow the deluge of a well formed trend for their investors and followers. Adani power is of course rid of the scourge of sourcing restrictions on coal for its newly contracted power plant

Debt trading segments in USE, BSE and the enhanced NSE however remain limited plays currently and the ECB/FII interest may well continue to gladden OTC markets in the region than such networks. Meanwhile CAG remains the only institution globally that continues to spew out half cooked assumptions a s full fledged anti incumbent reports and is soon likely to be put in the same basket as INdia’s defunct non parliament attending ‘national’ opposition.

Morgan Stanley’s sale of its Wealth management business of $800 mln AUM and 30% of its India revenues to Stanchart probably also has a feeble correlation to what drives ratings agencies to make a grab for an institution status for themselves in that bid to be cautious, much like the mistake traditional bankers trend to in underwriting credit, in being allowed to say they are conservative for ther laziness to fill in their information gaps or resist beating their own skew increasingly becoming a habit with S&P especially after in made noisy downgrades in Europe only under pressure and has updated India ratings in the nine months of this rally from 40% chance of downgrade to 33% of downgrade underlining a little bit of the informational opaqueness preferred by global information agencies for India and even other Asia to an extent and somehow more of the opaqueness related to not having to follow objective decision makly are more ing models a practice no eschewed by Moody;s are or suitably compensated by Fitch in openly absorbing positive developments in its qualitative ratings decisions

India Businesses similarily on the other side of the transaction understand this opaqueness and are much less willing to pay for expenses like ratings or even other investment bank and advisory businesses as undoubtedly the sharper colleagues in China would be able to raise an international ruckus over. We luckily or unluckily are more reputation averse ( positive or negative) in debates and are also ignored frequently in international power plays / diplomacy.

The euro plus bid is back in play with euro debt buyers unrelenting and the yen could well continue ‘down’ to 110 levels against the Dollar with jgb sell downs finally happening. However the rupee trend that are independent may strengthen only after the trend fatigue sets in on other asian currencies between the won and aussie trying to depreciate, sgd and the yuan. Indian yields I agree, will stop around 7.25% and 50 bp rate cuts immediately before policy results are absorbed by markets in the next stage (Indranil pan, Kotak) but India has likely been marked for many more rate cuts and much better growth performance now in 2013 as well as 2014 i.e. FY 2015

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This entry was posted on May 21, 2013 by in Financial Markets and tagged , , , , , , , .


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