Mkt Watch: Why Dalal Street does not take Fed too seriously
There is a herd mentality visible in other Asian markets; the mantle of independent thought rests with the two most revered markets, India and China, writes Udayan Mukherjee.india Updated: Dec 13, 2007 00:39 IST
India is displaying thought leadership in the global financial market. It was the only market aside of China that snapped its daily correlation with the US markets, and now seems to be reacting in a far more evolved and intelligent manner to US Fed action compared to the rest of the world. There is a herd mentality visible in other Asian markets; the mantle of independent thought rests with the two most revered markets, India and China. The post Fed global sell-off was quite immature. The US is actually a sick market hungry for bail-out recipes. This hunger sometimes whets expectations and when policy does not measure up to those hopes, investors work themselves into a tizzy.
Yesterday's sell-off almost suggests that the outcome of the recession question depended squarely on an additional 25 bps cut “now” and that it can actually be averted by a minor incremental Fed rate cut. If that is the assumption, investors are deluding themselves. Much was made of what the Fed’s “language” indicated, when past experience will tell everyone that it is at best un-indicative of subsequent action, at worst – confusing doublespeak. The Fed will do what it has to do, in this case cut rates. If they have not done enough in December it will be done in January. That is exactly what every savvy analyst, slightly removed from the scene of action, should infer and precisely what we did out here yesterday. Is that to say that the US is not going into a recession? Not for a moment. It certainly could but the jury is out on that. That reality, when it manifests itself in 2008, will certainly move all global markets significantly, including us. But we are not there yet. So it would be a folly to play the Fed action as a pre-emptive proxy of that outcome.
While it is true that global risks run high going into 2008, even a cursory glance at economic opinion will tell you that it is not an easy prognosis to make. The market could then choose to take it one step at a time. That could well mean that if more rate cuts follow and emerging market fundamentals remain robust, more risk could be taken on the table by global investors. Why waste the few good days in autumn worrying about winter?
Executive Editor, CNBC-TV18