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    MARKET EDGES

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Headlines for Indian news services today were a litany of woes as the terrorist attack on the Sri Lankan Cricket squad helped drive treasuries and equities lower while the rupee registered an all time low against the Dollar. Meanwhile, the decision by regulators to allow a sale of scandal battered Satyam BEFORE the criminal fraud probe is complete and BEFORE a public restatement of company financials in order to “restore confidence” appears to be having the opposite effect.

Bloomberg news reported today that a number of foreign hedge funds are shopping large stakes in public companies to private equity investors due to the lack of liquidity in the private markets. This decision to cut bait and run no matter what the cost by the fast money crowd does NOT represent a contrarian bullish inflection point: when those investors leave there is no new money waiting in the wings to sweep in. These outflows of foreign capital represent capital that is leaving for good.

Import and Exports

Trade data released yesterday paints a grim picture with exports declining by 15.87% Y/Y and Imports sliding by 18.22%. Declining global demand makes the outflow data unsurprising, but the import data was more significant. This sharp decline in imports cannot be simply chalked up to lower commodity prices: total Oil imports by volume, for instance, have declined by 13.5% over December and 6.62% Y/Y. Real domestic demand appears to be weakening at a faster pace than external demand for Indian goods.

The argument that India should be relatively resilient since it is less dependent on exports than other South Asian economies is absurd. Essentially the tortured logic behind that thesis leaves the remaining India Bulls arguing that the fact that major segments of the population are illiterate subsistence farmers is really a positive. Real math indicates that the recently released 5.3% Q4 GDP print is not anomalous and the first two quarters of this year could easily register at significantly lower levels: a far cry from the double digits that the Singh administration has been counting on to deliver on its promises in an election year.

We continue to expect the situation in India to deteriorate economically and politically. We covered our short position in India (IFN) yesterday. We are not short the Rupee currently, but will seek opportunities to re-short into strength.

Andrew Barber
Director