Comments on: The Conundrum of Low Indian Interest Rates http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/ Issues & insights Thu, 20 Nov 2008 11:11:30 +0000 http://wordpress.org/?v=2.6.1 By: Brent Everett http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/#comment-1940 Brent Everett Wed, 01 Feb 2006 16:57:38 +0000 http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/#comment-1940 Domestically (in the US) there is normally an inverse relationship between the bond and equities markets. The equities market in India has been red hot for sometime now. Assuming the Indian equities begin to cool off, or decline and assuming their is a true market dictating allowance in the economy, yields will probably increase also. Now the long term rates have been creeping up in the US, but the equities market has basically been sideways since at least 1999 when the Dow Jones IA passed 10,000. In the US, one of the surprising (to me) aspects of the low rates was the lack of borrowing by American businesses due to concern about the broader economy. Despite historic lows in interest rates, companies resisted capital spending as well as consistenly reduced payrolls. Domestically (in the US) there is normally an inverse relationship between the bond and equities markets. The equities market in India has been red hot for sometime now. Assuming the Indian equities begin to cool off, or decline and assuming their is a true market dictating allowance in the economy, yields will probably increase also. Now the long term rates have been creeping up in the US, but the equities market has basically been sideways since at least 1999 when the Dow Jones IA passed 10,000. In the US, one of the surprising (to me) aspects of the low rates was the lack of borrowing by American businesses due to concern about the broader economy. Despite historic lows in interest rates, companies resisted capital spending as well as consistenly reduced payrolls.

]]> By: Ameya http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/#comment-64 Ameya Thu, 18 Aug 2005 05:17:17 +0000 http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/#comment-64 I think the low interest rates has yet another implication - in the utilisation of factors of production. In the era of low interest rates, organisations would utilise more of capital and less of labor - reason being that capital is relatively cheaper that labor. In a labor surplus ( and capital scarce) country like India, the market signals (given my the low interest rates) would distort the usage of factors of production, leading to low growth in employment generation as compared to build-up in capital. (Yet to analyse data on that - but looks like a logical conclusion. I think the low interest rates has yet another implication - in the utilisation of factors of production. In the era of low interest rates, organisations would utilise more of capital and less of labor - reason being that capital is relatively cheaper that labor.

In a labor surplus ( and capital scarce) country like India, the market signals (given my the low interest rates) would distort the usage of factors of production, leading to low growth in employment generation as compared to build-up in capital. (Yet to analyse data on that - but looks like a logical conclusion.

]]> By: Amitabh Iyer http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/#comment-50 Amitabh Iyer Wed, 17 Aug 2005 06:04:36 +0000 http://indianeconomy.org/2005/08/10/the-conundrm-of-low-indian-interest-rates/#comment-50 I agree with the part of real returns being negative, but honestly, as a local investor must say, that corp governance at some of the new-age companies is quite good, sometimes better than anywhere else in the world. Sitting in Mumbai, the way I see the world around me, it seems that most Indians are culturally averse to the markets. My dad still tells me, 'Beta, why are you 'gambling' by putting all your money in equities, and it kind of saddens me. At the same time, seasoned 'veterans', speak of trivialities such as 'Reliance is cheaper than ITC', why....because reliance is at 700 odd and ITC at 1600 odd....fundamental who cares....growth who cares....earnings they dont matter....harshad and his replacement theories still at work... My point....India is culturally averse to investment....so much so that the average householder does not not even understand equities. As for SEBI, I dis-agree that its a strong regulator....Sameer Arora and UBS seem to be abberations...Reliance and the host of corporate questions that float around, seem to the norm. It is definitely toothless( or maybe intentless( if such a word exists in the queen's language)). I agree with the part of real returns being negative, but honestly, as a local investor must say, that corp governance at some of the new-age companies is quite good, sometimes better than anywhere else in the world.
Sitting in Mumbai, the way I see the world around me, it seems that most Indians are culturally averse to the markets. My dad still tells me, ‘Beta, why are you ‘gambling’ by putting all your money in equities, and it kind of saddens me.
At the same time, seasoned ‘veterans’, speak of trivialities such as ‘Reliance is cheaper than ITC’, why….because reliance is at 700 odd and ITC at 1600 odd….fundamental who cares….growth who cares….earnings they dont matter….harshad and his replacement theories still at work…

My point….India is culturally averse to investment….so much so that the average householder does not not even understand equities.

As for SEBI, I dis-agree that its a strong regulator….Sameer Arora and UBS seem to be abberations…Reliance and the host of corporate questions that float around, seem to the norm. It is definitely toothless( or maybe intentless( if such a word exists in the queen’s language)).

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