I was on vacation for a week and all of a sudden amidst the desert of Jaisalmer saw Indian markets crashing like anything. Called up one of my colleagues in Kolkata and he told that the sell of today is because some kind of a debt default by a company from Dubai (another desert place).
The first thing that came to my mind, is since when the global markets have started following DUBAI..!! But when I came back and read some news articles and reports by eminent houses like CLSA and Citi group, the sell off really made sense.. at least for India, if not for the rest of the world. This is mainly because:
- Indian are ~ 40% of UAE’s populations; forming ~10-12% of India’s inward remittances. Thus a debacle in UAE could really hurt forex remittance into India and also increase unemployment
- UAE forms ~8% of India’s non-oil exports
- DP World operates five container terminals in India, accounting for 40% of India’s container traffic
- A lot of JVs between Indian and Dubai based firms are operational in Indian Real estate domain (Emmar- MGF, DLF-Limitless, etc) and this could severely impact real estate prices in India
- Good for India, Indian banks does not have any materialistic loan exposure to companies in Dubai
What exactly happened is that Dubai’s failure re-awakened a number of dormant fears in investors that the worst probably is over,but the things are definitely back to 100% normal. Dubai which was potraying itself as a gateway to the financial world has being held in a sandstrom it has created on its own. A lot of importance was being given to forex trading in dubai but now it will also take a setback.
Thus in the coming few days, it would be good to remain cautious on the global capital market recovery and the best strategy is to go short with a stop loss of around 5200 on Nifty Index on a closing basis. Because the way media has waved off this Dubai Debacle in a day or two is actually a cause of concern since the crisis looks bigger than it is being portrayed as.