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No cause for them. Sensex worries are overdone and India is in a much better position to deal with it.
Given how global markets rose after the US Fed's decision to reduce its monthly bond purchases from $85 billion to $75 bn, the Sensex reaction seems overdone. While markets in China and Hong Kong also fell on fears that foreign investors would flock back to the US, where stock market yields are strong, keep in mind that things are quite different from the last time that talk of the taper gained ground. For one, with the US GDP growing at 3.6 per cent in the second quarter of 2013, a number last seen six quarters ago, a taper isn't expected to reduce US growth much, and this week's budget agreement suggests US politics may finally be coming together.
At that time, India's current account deficit was also out of control and, with the talk of the taper, around $7.1 bn of FII funds exited the country in June, another $3.1 bn in July and $2.3 bn in August — between June and August, the rupee fell from 54.39 to 62.68 to the dollar — and then the net inflows were just slightly positive for the next few months. The combined effect of an out-of-whack CAD and exiting FIIs sent the rupee into a tailspin. What made things worse was the fear that, as investors took up speculative positions against the rupee, it looked as if the RBI wouldn't have enough dollars to defend it. The perfect storm, as it were.
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