October 22, 2018

Do markets know what RBI-Sebi don't?

Shankkar Aiyar, Visiting Senior Fellow at IDFC Institute, writes in the New Indian Express on why the fear of contagion is spooking both foreign and domestic investors. Excerpts:


"We can be blind to the obvious, and we are also blind to our blindness. This profound observation is explained by Daniel Kahneman with the acronym WYSIATI—‘what you see is all there is’. Belief in WYSIATI yields no allowance to factor in gaps in the knowns and the unknown and leads to construction of a narrative to fit the conclusion.


For the past few weeks, in episodic bursts of panic, India’s stock indices have plummeted from historic highs and wiped out the gains of the calendar year. The benchmark Nifty50 has slid from 11,760 to 10,303 points and the Sensex from 38,859 to 34,315 points. Indeed, in just four weeks, the Nifty50 has given up 8.26 per cent of gains and the Sensex 7.56 per cent—year-to-date returns on Nifty 50 are at minus 2.16 per cent and on S&P Sensex at 0.76 per cent. 


For sure sentiments are impacted by a triangulation of rise in interest rates in the US, the spiralling of crude oil prices and the dwindling value of the rupee. It is equally true that the US Federal Reserve has hiked rates six times since March 2017, crude prices have risen to USD 80 from USD 52 per barrel of Brent in April 2017, and the rupee has slid from Rs 64 per dollar to Rs 74 per dollar. This did not stall the rise of the stock indices to historic highs in August. Since September, the fall in the stock markets has eroded an estimated Rs 20 lakh crore of public savings and investments."


Read the full article here.

Topic : State Capacity / In : OP-EDS
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