November 2007


Equity markets continued to be volatile during the month and end down 2.4% for the month. Stocks in IT were weak on concerns over US market slow down. Energy stocks that were strong over the recent past faced some weakness. Banking continued to do well.

International Environment

The US market is reeling under the pressure of having to take the mortgage market impact. Home loans in the US have been available freely over the past many years and the size of the US home loan market is about 10 times the Indian GDP. With the US home loan market seeing increased loss rates, many banks and mortgage companies are in the process of increase the loss provision against these loans. Companies like Freddie Mac / Fannie Mae have exposures in excess of $ 4 trillion to the US mortgage market (India’s GDP is 1/4th of this figure) and the scale of the potential impact, if the problem escalates, is staggering.

At present, several international investors are directing funds towards India with the assumption that markets like India are protected from the risks that US and some other developed markets face from the mortgage market related problems. On the other hand, if this international crunch continues, translating to a global economic slow down and affects liquidity, Indian markets are also likely to get affected.