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Sunday, October 6, 2013

If U.S. shutdown persists, there may be reason for Indian Investors to cheer.

The US government has shutdown since its leaders were unable to reach an agreement on the broader fiscal policy. This has not really unnerved the Indian investors as evidenced by the Indian share markets which have continued to rally since the shutdown. But if the shutdown persists, there may be reason for Indian investors to cheer more. At least this is what an article in the Wall Street Journal is saying. The reason for this is the Fed's QE policy. If the US shutdown gets prolonged, then the US Fed may find it difficult to taper off its QE plan. In that event, the flood of cheap money that has invaded our markets would continue for the time being. This means that our capital markets as well as our currency may find some sort of a support.

If we recall that when the US Fed had just hinted on a possible taper off, both the markets as well as the Rupee had come crashing down. Therefore any delay or postponement of the actual taper off is something that would provide relief to investors. However, the question is not whether the US government continues its impasse or whether the QE is prolonged or tapered off. The question is, why are our markets addicted to the money flood like to a drug? Why do we need an outside drug to provide stability to our currency and markets? Why is the economy itself unable to provide the same stability? The answer to this lies with the government who seems to be more interested in winning the next elections. Rather than do some actual work to make our economy stronger and th us more stable.

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