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Key Indian equity market indices open flat

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Mumbai, March 9  Ahead of exit polls data of assembly elections in five states, the key Indian equity market indices opened flat on Thursday.

The Sensitive Index (Sensex) of the BSE, which had closed at 28,901.94 points on Wednesday, opened marginally higher at 28, 909.70 points.

Minutes into trading, it was quoting at 28,852.72 points, down by 49.22 points, or 0.17 per cent.

At the National Stock Exchange (NSE), the broader 51-scrip Nifty, which had closed at 8,924.30 points, was quoting at 8,911.55 points, down by 12.75 points or 0.14 per cent.

On Wednesday investors remained cautious ahead of assembly election results and the outcome of the European Central Bank (ECB) monetary policy review.

Subdued investors’ sentiment along with a marginally weak rupee and heavy selling pressure witnessed in metal, oil and gas, and automobile stocks pulled the Indian equity markets’ indices down.

The Sensex was down by 97.62 points or 0.34 per cent at the Wednesday’s closing. In the day’s trade, the barometer 30-scrip sensitive index had touched a high of 29,022.32 points and a low of 28,815.48 points.

The Nifty, too was down by 22.60 points or 0.25 per cent.

On Thursday, Asian indices were showing a mixed trend. Japan’s Nikkei 225 was trading in green, up by 0.15 per cent, Hang Seng down by 0.93 per cent while South Korea’s Kospi was in red, down by 0.05 per cent.

China’s Shanghai Composite index was quoting in red, down by 0.86 per cent.

On a flat note, Nasdaq closed in green, up by 0.06 per cent while FTSE 100 was down by 0.06 per cent at the closing on Wednesday.

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ADB lowers India’s GDP forecast to 6.7%

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GDP

New Delhi, Dec 13: The Asian Development Bank (ADB) on Wednesday lowered its Indian GDP forecast for the current financial year to 6.7 per cent citing tepid growth in the first half, demonetisation and transitory challenges posed by implementation of GST.

The multilateral lender also revised its Indian Gross Domestic Product outlook for the 2018-19 fiscal down to 7.3 per cent, from 7.4 per cent, largely due to the hardening of international crude oil prices and stagnant private sector investment in the country.

“Owing to tepid growth in the first half of 2017-18, the lingering effects of demonetisation in November 2016, transitory challenges of a new tax system, and some risks to agriculture stemming from a spotty monsoon in 2017, the economy is now expected to grow by 6.7 per cent, slower than the seven per cent forecast in the Update,” the ADB said in a supplement to its Asian Development Outlook (ADO).

In its September update, the ADB had downgraded India’s growth projection for the current fiscal to seven per cent and also lowered its forecast for the next financial year to 7.4 per cent, from 7.6 per cent.

GDP figures released by the Central Statistics Office here in November showed that, reversing five consecutive quarters of decline, growth in the second quarter ended September rebounded to 6.3 per cent, from 5.7 per cent in first quarter.

Meanwhile, a UN report released earlier this week in New York noted that subdued private investment in India, which has declined as share of GDP from 40 per cent in 2010 to 30 per cent in 2017, coupled with the staggering bad loans accumulated in the Indian banking system, are major causes of concern.

“The anaemic performance of private investment remains a key macroeconomic concern. Gross fixed capital formation has declined from about 40 per cent in 2010 to less than 30 per cent in 2017,” said the World Economic Situation and Prospects (WESP) 2018 prepared by the UN Department of Economic and Social Affairs (DESA).

The report said the global economy grew at an average of three per cent in 2017, the highest growth rate since 2011, and is expected to remain steady at three per cent in 2018 and 2019.

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Markets open on negative notes

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Mumbai, Dec 13: The 30-scrip Sensitive Index (Sensex) on Wednesday opened in red during the morning session of the trade.

The Sensex of the BSE after opening at 33,229.73 points touched a high of 33,248.92 and low of 33,123.44 points.

On Tuesday the Sensex closed at 33,227.99 points.

The Sensex is trading at 33,179.21 points down by 53.56 points or 0.16 per cent.

On the other hand, the broader 51-scrip Nifty at the National Stock Exchange (NSE) opened at 10,236.60 points after closing at 10,240.15 points.

The Nifty is trading at 10,225.90 points in the morning.

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It’s best to steer clear of Bitcoins lest the bubble bursts

Either when the speculative run ends or governments decide to regulate, the Bitcoin dream run is bound to come to an end. It is best to steer clear of the dreaded eventuality.

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Bit Coin

It is impossible to make sense of the Bitcoin-mania that has been making waves of late.

In just a span of one year, the crypto-currency has doubled four times. The price of one Bitcoin in early January was $1,000 (almost Rs 64,000). It rose to $2,000 by May. In August, it breached $4,000. By late November, it was $8,000 and, two weeks later, it had crossed $16,000. Nothing short of a bubble can explain such an astronomical run. In fact, most recently, the market valuation of Bitcoin in South Korean markets briefly surpassed that of JP Morgan, the world’s largest bank.

The Bitcoin bubble is quite reminiscent of the myriad bubbles in global economic history beginning with the infamous Tulipmania of the 1600s. The tulip bulb bubble occurred in Holland during early 1600s when competing for the rarest tulip bulbs became a status symbol and speculation eventually drove its price to the extremes. At its peak, the price of tulip bulbs rose as much as 1,100 percent in a month. All of this came to an abrupt end in 1637 when prices dropped to an extent that bulbs began trading at a fraction of what they once had, miring many in financial ruin. All bubbles end in a similar fashion. Only the extent differs.

Olivier Blanchard and Mark Watson, in their 1982 paper “Bubbles, Rational Expectations and Financial Markets”, explain why assets like gold, just like Bitcoins, are prone to evolve into bubbles. First, gold acts as a hedge against inflation. This, however, is not true in the case of Bitcoins. The second reason that Blanchard and Watson give for a regular gold frenzy is that people base their choices on whether or not to hold an asset based on past returns rather than market fundamentals. Therefore, investors who witness a rise in asset prices believe that they can hold on to it themselves as long as it appreciates and get out of the market before the market crashes.

The latter reason holds true in the case of Bitcoins, which are largely being driven by such speculation. Even though the Blockchain technology behind the currency is revolutionary and could very well be the Next-Big-Thing, it does not explain the astronomical 16-fold rise that it has displayed this year. It would make sense if this trend were occurring in light of a broader loss in confidence in fiat money. But this is clearly not the case in the current global economic scenario, which finally seems to be picking up.

It can also be argued that since central banks have been practicing easy monetary policy since the crisis to revive economic activity, asset prices have displayed an upward trend. Therefore, in a market where stocks, bonds and other such assets are overvalued, Bitcoin is not an exception. Its rise can be merely a hedge against oncoming interest rate hikes. But, that does not explain why the rise in gold prices has not been similar. In fact, the rise in gold prices has been lower than that in stocks.

There is an additional aspect of the Bitcoin that might explain its widespread appeal: the anonymity involved in its transactions. Bitcoin transactions can be made securely without revealing one’s identity, which makes it easy to bypass the government eye altogether. If true, the rise of Bitcoins could point to a disturbing trend of breakdown of global institutions. The Bitcoin craze can be seen in conjunction with a spate of shocking election outcomes that have been witnessed globally which reflect a larger loss in confidence in institutions that have guided growth.

However, in such a case, the longevity of the currency will be dependent on the government’s appetite to allow such transactions. It is hard to imagine governments allowing large-scale anonymous transactions that evade any taxation and enable criminal activity. China has already banned the currency. On the other hand, Japan has made it legal tender in an attempt to become the global centre of fintech. The jury is still out on what course governments across the globe will take. American economist and chess Grandmasster Kenneth Rogoff put it best recently when he said: “The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates.”

Either when the speculative run ends or governments decide to regulate, the Bitcoin dream run is bound to come to an end. It is best to steer clear of the dreaded eventuality.

By : Dr. Amit KAPOOR

(Dr. Amit KAPOOR is chair, Institute for Competitiveness, India. The views expressed are personal. He can be contacted at [email protected] Chirag Yadav, senior researcher, Institute for Competitiveness, India has contributed to the article)

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