Ashok Dasgupta

Market sentiment still unstable; strong FDI inflow

Liquidity concerns persist

Net outflow from stock markets

NEW DELHI: Even as mixed economic data and uptrend in stock prices in India and abroad in recent weeks have sparked optimism over an economic recovery, the Moody’s has projected a grim scenario saying “the worst is yet to come.”

In its latest research report, Moody’s Economy.com has said: “The positive sentiment is expected to be short-lived, as India essentially only started feeling the pinch of the global downturn in the December quarter and the worst is yet to come.”

The report noted that the Indian Government’s advanced GDP (gross domestic product) growth estimate of 7.1 per cent for 2008-09 released just over a month ago was “wildly optimistic”.

Projecting another notable slowdown in the quarter ending March which should take the annual growth rate to about 6.3 per cent with risks tilted towards the downside, it said India’s GDP growth was unlikely to exceed five per cent in 2009. However, a rebound in the opening quarter of 2010 — which is dependent on the forecast of a U.S. rebound in the December quarter — should lift annual expansion to about five per cent for fiscal 2009-10, it said.

Sluggish growth

Assigning reasons for the sluggish growth, the report noted that market sentiment was still unstable in India and so far in 2009, there has been a net outflow from the country’s stock market as the global turmoil drags on. However, foreign direct investment (FDI) has been reportedly strong in the current quarter, rebounding from a massive 25 per cent year-on-year decline in the December quarter, it said.

Businesses in India continue to be troubled by liquidity concerns and tight access to credit. Firms are not only issuing bonds to raise funds, but now also use the option of deposit taking. As the current focus of many firms is to refinance debt and survive the financial turmoil, investment is expected to be subdued this year, the report said.