How do you see the European sovereign debt crisis panning out?
The euro crisis keeps going on like a yo-yo from optimism to pessimism. Yet, most people understand that despite the situation you cannot let a sovereign collapse. Greece will be bailed out but until the time that a mechanism is worked out, much volatility will exist. Italy has a larger fiscal deficit but the economy is also larger. It can generate a lot of revenue. But it is not going to be easy. The Europeans have been used to luxury and it will be difficult to tighten up. But Europe will not let a sovereign government default on its debt.
How do you see the rupee playing out?
There is not much the RBI can do to tackle this issue. It would require as much as $30-40 billion to bring the rupee down to the `50 level — something that is very difficult to do, even for the RBI. What it could manage to do is to put in $1-2 billion and see slight cooling in the rupee, but that too would be very short-term in nature.
What impact do you see of a weakening rupee on corporate India’s bottomline in the year 2012?
High rupee prices will definitely affect Indian corporates. Nevertheless, it will vary from company to company — what percentage of their borrowing is foreign-currency dominated and what kind of dollar earnings (percentage of total) these companies have. For example, companies with dollar earnings and with ECB borrowings may see a lower impact than those with no dollar earnings and with an ECB loan. But with the rupee weakening, you will see ECBs vanish. Most companies that have borrowed in a foreign currency have burned their fingers.
What does 2012 hold for the markets?
Third quarter GDP could be under stress. There will be no fast reversal and back-to-high-growth mode. I expect one to two quarters to be subdued. Market will not see a changeover for about three to four months but a change in sentiment could bring changes faster. Say, if the currency situation changes and the rupee gains 3-5 per cent, it could change the market’s sentiments. Take another example. The markets have been rattled by corruption. While not exactly measurable, investment has certainly been impacted by the level of perceived corruption. If the government passes the Lokpal Bill that may change sentiments.
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