India - the riskiest BRIC

Credit Default Swaps (CDS), the financial instruments keenly tracked by sophisticated investors around the world for the first stirrings of trouble have risen for all BRIC nations as a whole, with India leading the charge.

By ET Bureau | Updated: Dec 21, 2011, 03.29 AM IST

The past few weeks have seen a sharp increase in the cost of protecting overseas debt of Indian companies against default, a reflection of the problems enveloping the country's economy that is buffeted by slowing growth, a falling currency, high inflation and high interest rates.

Credit Default Swaps (CDS), the financial instruments keenly tracked by sophisticated investors around the world for the first stirrings of trouble have risen for all BRIC nations as a whole, with India leading the charge.

What does this sharp rise mean?

The sharp rise reflects adverse developments that could weaken the Bank's finances.

Why is it happening?

It is happening because the govt's strained finances leave little room for capital infusion and worsening balance sheet.

What has it portend for the future?

It reflects growing fears. But developing markets CDS are thinly traded, prone to abnormal spikes, and hence are not considered an accurate barometer of risk perception.

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