India better prepared to face winding down of U.S. Fed’s stimulus programme

India better prepared to face winding down of U.S. Fed’s stimulus programme

While Asian stocks suffered considerable falls in wake of announcement of the U. S. tapering on Thursday, India's Sensex was little changed. The Sensex shed just 0.72 per cent to close at 20,498.25 points, indicating that Indian economy is better prepared to face the winding down of the U. S. Federal Reserve's stimulus programme.

On Wednesday, the U. S. Federal Reserve announced that it would cut its bond purchases by another $10 billion, from $75 billion now to $65 billion per month starting February this year. The initial cut of $10 billion in the central bank's monthly bond-purchasing programme was announced following its December 17-18 meeting.

The winding down of the extraordinary economic stimulus programme is widely feared to affect the emerging economies. However, Union Finance Minister P. Chidambaram as well as RBI Governor Raghuram Rajan has repeatedly assured that Indian economy is in a better position to handle the winding down of the stimulus.

Turkey hiked its benchmark rate by more than 100 per cent, while South Africa tightened its monetary policy to withstand the tapering. Nevertheless, the rand slipped almost a five-year low, while the Turkish lira suffered a considerable weakness.

But, Indian stocks remained comparatively strong. The rupee has appreciated from a low of 68.82 in late August to 62.29 on Thursday.

Santosh Kamath, chief investment officer at Franklin Templeton Investments, said, "India remains relatively well-placed in the current environment, withstanding the pressure on emerging markets."

India's sovereign credit risk is currently at 0.07 per cent, significantly lower than sovereign credit risks of other emerging economies. Venezuela has a sovereign credit risk of 5.41 per cent, while Turkey, South Africa, Mexco have sovereign credit risks of 0.97 per cent, 0.44 per cent and 0.17 per cent, respectively. Moreover, the Indian finance ministry is also confident that it would be able to successfully meet the fiscal deficit target of 4.8 per cent of GDP for the current financial year.

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