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Nov28
Dubai debacle spooks Indian markets
Filed under: News & Views; Tagged as: anand sharma, asian markets, commerce minister, debt crisis, debt trap, dollar debt, dubai debacle, economic analyst, financial difficulty, financial trouble, global panic, global recovery, india india, indian economy, indian markets, million dollar loans, rapid expansion, real estate sectors, realty stocks, remittancesNo CommentsIndia joined world markets Friday (November 27) as the news of Dubai sliding into a debt trap spread global panic on with fears of the economic recovery being derailed.
World markets were spooked on Thursday by fears of fresh financial trouble after Dubai asked for more time to repay its $ 80 bn dollar debt. Dubai World, the conglomerate which led the Emirate’s rapid expansion, is asking creditors respite on the million dollar loans racked up by the firm and its subsidiary Nakheel.
This has raised fears that the state could default on some of its loans which could cause a major crisis of confidence in the region at the time when the global economic recovery remains fragile. It may raise the prospect of further losses at banks that have loaned to Dubai World.
Meanwhile Indian markets took a sharp cut in opening trades today in reaction to Dubai’s debt crisis. Banking and realty stocks were the worst hit. Asian markets also took a tumble as fears grow about the potential repercussions of a default by Dubai.
However speaking to reporters today Commerce Minister Anand Sharma declared that the Dubai crisis would not affect India. “India is a large economy. I do not think that some developments in the real estate in Dubai is going to impact the Indian economy. As far as India is concerned, the housing and real estate sectors and construction industry is doing well. This is confirmed by the increasing demand for construction materials, cement and steel,” said Sharma. On being asked how the Dubai debacle would affect the income of Indians employed in the Middle East, Sharma said his ministry was not mandated to look at remittances.
Commenting on the Dubai debt crisis, several analysts stated that it looked too early to say whether this indicates another hitch in global recovery, and said a wait and watch approach is the best move at this point.
Economic analyst Kamel Wazne says, “In this climate of financial difficulty what Dubai is doing is what has been done around the world – the Keynesian concept of running a deficit during difficult times. I think Dubai needs to finance its deficit through selling bonds and that is actually what is doing right now. But this in the future might put some burden on the government if they accelerate their debt.
On the Indians market reaction this morning, Sanjiv Dhawan, MD, JV Capital Services said leveraged positions unwinding could have contributed to the fall. “We have to wait for a few more days for clarity. A 3-4% fall is not a big issue. If things get worse in Dubai, then bullish firms on India and other countries of this region may delay fund flows and engage in heavy selling.”
He said Dubai’s property problem has been there for several years now, and that though Indian ministers have expressed confidence that India will not affected. “There has been a lot of investment and trading and speculation in Dubai property and prices have appreciated. But the nervousness began a few months ago as the crisis piled up. India has a lot of foreign trade in Dubai and a lot of exposure to Dubai and the Middle East. So it’s very hard to predict, but it would be a real surprise if Dubai, Abu Dhabi and others in that region would let the crisis escalate even further.”
Rajat Nag, Managing Director of ADB said: “I think it only underlines the fragility of the global recovery. Our point always has been that, while we do believe that the global economic recovery is on the uptake of a V, it is fragile and tentative and what has happened is just a confirmation of that.”
Y V Reddy, former RBI Governor expressed concern on how Indian workers in Dubai would be affected. Thousands of expatriates could be looking at job losses.
“Much would depend on its impact on the real economy there and employment. That is something which one has to wait and see. It’s one thing if property prices or share prices come down – those will affect only one section of people. But how is it going to affect the living conditions, the employment conditions, the real economic activity in those countries where we are employed?” said Reddy.
Tags: anand sharma, asian markets, commerce minister, debt crisis, debt trap, dollar debt, dubai debacle, economic analyst, financial difficulty, financial trouble, global panic, global recovery, india india, indian economy, indian markets, million dollar loans, rapid expansion, real estate sectors, realty stocks, remittances
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