Sub-Prime market affect to Indian Economy can be deeplyfelt. Sneeze in Sub-Prime market can be felt in the Indian capital market. Inthe best way we can say, Indian market is dependent on European market. India is on the development stage where financial market and capital market is still notmatured. If we see the rousting rise in share market and see the contributionof Indians then the face of coin probably change. Its not Indian who arelifting the stock to new high, but FII who are investing and driving thebenefit out of it.


What will be the situation if FII started to shift to otheremerging markets? Will market still sustain? Major chunk of capital inflow inIndian stock market are by way of FII in various modes. Any initiative taken tocurb the activities of FII, lead market to tumbling and crashing by more then1000 points in a single trading day. Now, the issue is whether sub-prime market has any further effect to Indian stock market. To be genuine and precise Yes it will. The reasons can be shortage of funds. The other reason that can be seenin future is restructuring and taking precautionary measures take by MultinationalCorporation, FII institution to safeguard them from sub-prime crisis. There canbe possibility seen that FII may hold cash reserve until and unless sub-prime issue is not eradicated from its root.


Indian big wigs and corporate who have big dreams andambition like Tata and Birla to acquires Company larger in there size have to dreamof something else in some other area. Leverage Buyouts (LBO) will bevery difficult in the current future due to shortage of fund and lesser creditavailability. Credit is getting market and interest rate is going down to Sub-prime. American lenders who are the major players in LBO have filled for bankruptcy. This canalso indicate that, in future LBO will see a bottom down.


Borrowers who against there stocks and assets have went forLBO will default, as every reaction has equal and opposite reaction. Future,LBO as per current scenario can be seen as night mare. There are chances thatsub-prime borrower are among those who have gone for fund raising by way ofLBO. Basic aim of going for LBO will not be achieved if borrowers are unable topay the interest component of its Principal amount. Lenders will be reluctantto lend money and if they lend then too, the rate of interest will be very highin order to repay the same. Debt financing will see a slack in near futureunless and until measures to come out of this Sub-Prime issue is worked out.


The stage where one can see the growth of economy and dreamsof Companies to go multinational is seeing a major hurdle as challenges to competewith world economy will be a trouble. Alternatives are expected from the Corporatein this challenging environment to pursue there goals and to overcome investorexpectation. New financial instrument shall be explored and market should bebuilt for making Indian Economy stronger. Though market is high and bullish butwhen it will be a nightmare no one knows.


Due to sub-prime crisis value of money is going to appreciate against US dollars. Growth of several Indian IT companies is on stake. Small ITCompanies with fewer reserves have to take precautionary measures and hedgethere funds. Indian market is to be explored. More or less measures are to betaken to face the crisis in future as the day is not so far when India will bethe country which will have the most dampening affect of credit crisis.


About the author:


PDS Legal

Naveen Maheshwari

Associate


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