Parallel Universe: India Edition

More signs of parallel universes or divergences between the real economy and the financial markets

From the Voice of America September 10 report 

As a plunging currency and a slowdown in consumption hamper India’s once vibrant economy, many industries are facing the prospect of plummeting profits.

Usually at this time of the year, consumer companies look ahead to windfall profits. Starting in September, consumption increases because it is considered auspicious to buy new products such as cars and televisions for the main Hindu festival, Diwali, to be celebrated in November.   

But this year the mood in most corporate headquarters is pessimistic. The reason: the plunging rupee. India’s currency has lost nearly 20 percent of its value in recent months, pushing up costs for companies that rely on imports of raw materials. That is a large number ranging from electronics to automobiles.

Nope. Untrue. Not from the way India’s stock market has recently behaved where the BSE index is seem as just a breathe away from the this year’s highs. 

This world has been full of surprises. In just about two weeks India has undergone a dramatic transformation coming from a brink of a crisis to a state of euphoria-nirvana.

And these have been one major reason why people have seen markets as having only one direction: up up and away! Risks have all vanished!

The rallying Indian rupee or USDINR (yahoo)

Yields of India’s 10 year bonds seem as hardly receptive to the stock market and the rupee. 

[Bloomberg’s chart has not been updated to include yesterday’s close so I put on my “update” via the red line.]

Has the transformation been real? Has the newly installed Rajan led central bank delivered the miracle?

Well the jury is out whether all these are sustainable or if they are mirage.