Is India Vulnerable to the U.S. Subprime Crisis Global Slowdown

• ICICI and three other Indian banks with exposure of $3 bn to credit derivatives are writing down losses due to rising spreads, making provisioning; but they have no direct/indirect exposure to subprime derivatives
• Uncertainty in global financial markets, fears of U.S. slowdown have led to volatile stock market, sell-off by FIIs
  
• Morgan Stanley: Recent capital inflows have lead to BOP surplus, credit and demand growth in spite of fiscal/current a/c deficit; global credit crisis will impact capital inflows (portfolio equity, private equity, real estate), raise cost of external funding for capex, impact demand and growth
  
• Via Bloomberg: Credit risk limited to a few banks; no large-scale credit losses
• Shah: Poor monetary mechanism will limit the use of interest rate during economic slowdown, will impact recent boom in investment and growth
• Service exports may be hit as U.S. firms(a/c for 60% of India's service exports) cut down IT spending, but outsourcing may get a boost as companies try to cut costs; Citi (via PTI): Low export intensity and exposure to U.S. slowdown but some IT and non-IT exporters (leather, textile, jewelry) have high revenue exposure
• RBI and Govt: Sub-prime risk contained by monetary/liquidity management, banks have enough liquidity/low exposure to subprime; supervision of banks' exposure to foreign currency, corporate lending, credit/market risk and off balance sheet exposures; strong economy and corporate sector will reduce impact from global cues
• EIU: Stock market vulnerable to panic among international investors due to the large foreign portfolio investment; market fall in short-term to be led by U.S. markets and not country fundamentals
• Bowring: Risks from fiscal/current a/c deficit, low FDI, productive capacity; stock market boom and private credit led by global liquidity and capital inflows; may impact domestic money supply, asset prices, financial sector's vulnerability to bad debt
• Goldman Sachs (Finance Asia): U.S. recession will reduce export and economic growth but domestic demand and booming stock market will lend support to investment and growth
• Lex: Low subprime exposure of banks, debt-equity ratio of firms but sudden capital exit/stops can raise interest rates