i Develop Stocks Advisory

No time to sell but to invest..... The annual session on Global Economic Outlook at Davos could not have been better timed as it immediately followed the recent global capital markets plunge. The IMF managing director, Dominique Strauss-Kahn, stated that the US subprime crisis was due to lack of financial regulation. Low interest rates, high liquidity, a breakdown of credit and risk management practices, and a shortcoming in US financial regulation and supervision had produced an economic storm in the financial world and called for its recognition. Strauss-Kahn called for a “serious response” to the risk of a US recession and encouraged fiscal stimulus programmes in some countries: “We cannot rely only on monetary policy. Some countries are not in a situation to increase the deficit, but others are in the position where there is some room for fiscal loosening.” Strauss-Kahn said that the first priority is the restoration of normal function in financial markets, which means that the central banks should provide funding to interbank markets. The IMF MD suggested that the slowdown could result in a decrease of the price of commodities, including oil, which would provide room for a more active monetary policy, “There will probably be even more room to lower rates in the coming weeks or months depending on the price of commodities and on the decreasing demand.” He recommended that larger systemic financial institutions raise capital instead of selling off assets. He warned against excessive supervision exacerbating the crisis by calling for financial institutions to make balance sheet corrections on the asset side rather than securing capital. Strauss-Kahn said that the IMF revised forecast to be released next week will forecast a slowdown even if emerging markets appear to be doing well, for the last week’s experience shows that the markets are not yet decoupled. Earlier, Finance Minister P Chidambaram had said that India was not affected by the slowdown. Its economy is driven by investment, consumption and exports, and has been undergoing an investment boom fuelled by savings that add up to 35% of GDP. He expects only minor secondary effects from the US slowdown, but it could be re-assessed if there is a full-blown crisis. India has a small current account deficit and a fiscal deficit. He cannot speak for other emerging economies.