The billion-dollar financial marriages of countries through their sovereign wealth funds (SWF) with these banks need to be seen in this context. Last week, on January 15, SWFs of Singapore, Kuwait and South Korea put in $21 billion into Citibank and Merrill Lynch. According to The Economist, “Since the subprime mortgage fiasco unfolded last year, such funds have gambled almost $69 billion on recapitalising the rich world’s biggest investment banks (far more than usually goes the other way in an emerging market crisis).”

While the crisis is here to stay awhile, the right crutch that’s helping Indian asset managers limp ahead is of sentiment. In the futures and options segment, the falling market passed through all ‘bottoms’ like a hot knife through butter, creating a meltdown that streamed into the cash market. Usually, traders are tense about squaring off their leveraged long positions a day before settlement. This time, however, that wait seems to have expanded to accommodate global worries.

As far as Indian companies go — for those who have forgotten, the underlying assets over which trading in securities and through it the Sensex happens — even though results are tamer than the 35 per cent plus over the past eight quarters, at over 30 per cent they remain high. To me, even a 25 per cent growth, modest in the short term but attractive by any standards, is large enough to attract capital, global or domestic.

What’s difficult is to create a financial policy environment that maintains this growth and enables its acceleration, keeping the 8-10 per cent per annum GDP growth target as an aspiration. In order to do that, Indian business is fighting two battles — currency appreciation (it has risen by 14 per cent over the past year), and high interest rates (7.75 per cent against 4.25 per cent in the US, 5.5 per cent in the UK, 4 per cent in Europe). Balancing these growth aspirations on one side with inflation on the other is not going to be easy for RBI governor Y.V. Reddy when he releases his credit policy on January 29 — to make Indian business more competitive, he should not cut but hack interest rates.

... contd.