In a year most notable for a rolling series of financial crises that have claimed the heads of many of America’s top bankers, India’s vibrant financial markets and new-found economic clout have provided a breath of fresh air. Indeed, New Delhi and Mumbai have fast become regular destinations for America’s leading investment bank chiefs, many no doubt rather happy to leave behind the sub-prime stench for a few days.
Many visitors naturally incorporated global events into their itineraries. Lloyd Blankfein, Goldman Sachs’s CEO and chairman, popped up at the Fortune Global Forum in New Delhi to offer his assessment of India’s, and the world’s, varying economic fortunes. Much of his India prognosis was, naturally, positive. The country’s economy is forecast to grow at roughly 10% for the next few years, and Blankfein suggested that if India continued to open up its financial and capital markets, Goldman would be prepared to treble its investment there to $3 billion.
Blankfein’s illustrious predecessor, Hank Paulson, now US Treasury secretary, also graced Fortune’s halls at the colonial-era Imperial Hotel, although he had an altogether more depressing task: explaining (yet again) to an assembled throng why the US’s latest gout-ridden export – sub-prime-linked securities – was a) not a problem for Asia but would b) probably get worse in the US before it got better.
JPMorgan’s chairman and CEO, Jamie Dimon, also washed up on India’s shores in October, popping in to give a speech and shake industrialist Ratan Tata’s hand at the company’s 2007 India conference.
India’s heady rise conceals only one big concern – that America’s next export will be a full-blown economic recession. This concerns India’s business community far more than, for example, China’s, which will be protected by a government prepared to ramp up state-linked infrastructure investments at the merest whiff of a recession in Washington.
Indeed, India has already been walloped by financial uncertainties in the US. The source of the trouble does not lie in the sub-prime fallout. (India’s financial markets were largely disconnected from the global financial system when US banks were slicing up and selling on those cheap, shoddy, badly manufactured services.)
The real problem for India is the enfeebled US dollar, which has hurt local textile firms, auto parts exporters and, most notably, the country’s rising IT titans. Such companies as Infosys, Wipro and Tata Consultancy Services rely heavily – perhaps too heavily – on US customers. Repatriating earnings into the rupee, which appreciated 14% against the greenback in the year to November 14, has become increasingly costly. That explains why Wipro’s American depositary receipts fell 16.4% in the year to November 14, with Infosys’s ADRs off 26% over that period.
Yet that might be just the start of the discomfort for India’s IT companies if the US succumbs to a slump next year. If that happens then perhaps New York’s brightest banking luminaries won’t be welcomed with such open arms in 2008.
