Dubai World's impact on India to be limited, say experts

The impact of the Dubai World crisis on India's economy would be limited and the authorities there would find a way out, experts said.

"The impact of the Dubai crisis on the Indian economy would be very limited. Dubai World's debt is known to almost everybody. The news is the deferment of their repayment of liabilities. The Dubai government will find a way to save the company," Edelweiss Institutional Equities' Co-Head Vikas Khemani told PTI here.

According to another expert, the general feeling is that the UAE government will come out with a statement of support for the crisis-ridden company soon.

"The general expectation is that the UAE government will come out with a strong intent or statement of support for Dubai World and its related business, which can then arrest possible sell-off that one can expect before the markets open on Monday," Barjeel Geojit's CEO Krishnan Ramachandran said.

Ashutosh Datar, strategy analyst of IIFL, the institutional equities arm of India Infoline, said: "From an India-perspective, the exposure of Indian companies to Dubai appears very limited."

"After all, Dubai is just one small part of the entire Middle-East. Firstly, at $50-billion, the size is small in the overall context and secondly unlike last year when Lehman Brothers or AIG were in trouble there is no global systemic risk involved," he said.

Markets globally have reacted negatively to the news of debt-restructuring of Dubai World, the Dubai government's holding company and it is expected that markets would react negatively when they re-open on Monday as well, experts said.

"The proposal by Dubai World, a state-controlled enterprise, to restructure its debt portfolio has taken the markets by surprise and is being viewed as a prospective quasi-sovereign default. The timing of the announcement added to the uncertainty, it was done just before the long Eid holidays," Ramachandran said.

"The local markets are expected to react negatively once they open on Monday and the global markets have already reflected their concerns with the corrections seen, especially in the CDS and bond prices of Dubai-based entities, Nakheel in particular," he added.

Echoing a similar view, Edelweiss' Khemani said, "The markets all over the world are looking for a correction again and this is the correction."

"Global markets will react negatively till the uncertainty is cleared. (However), it will not have a long lasting impact on the market," he said.

Highlighting a bright spot in this uncertainty, experts opined that there is still an opportunity in this uncertainty for investors and that they should use the sharp correction in the equity markets to buy.

"In the near-term, risk appetite might wane and capital might flow towards safe-haven assets like US treasuries. But once the dust settles, the medium-term story of capital flows into emerging markets will continue due to their robust fundamentals. In our view, investors should utilise any sharp correction in equity markets to buy rather than panic and sell out," Datar of IIFL said.