India highly prone to global credit crisis

Citigroup cites India’s very high ratio of total external finance to forex reserves and high level of mobile capital compared to the reserves as the main drawbacks, making the country highly vulnerable to the global financial crisis.

“Regardless of the future path of the financial crisis in the US, global economic and market conditions are likely to change. The world will probably no longer be the same as the one of the past decade. The global turmoil will further tighten liquidity and lead to a dramatic slowdown in global assets inflation,” says the Citigroup report. The report adds: “Rising capital outflow risks could also add greater pressure on the Indian rupee, won, peso and rupiah.”

A fund manager of a domestic brokerage house said selling by hedge funds in the Indian market is like throwing a stone in the sea. Since the depth of the sea is not known, it will be difficult to ascertain where the stone is headed or how far hedge funds will continue with their selling spree.

Source: Business Standard