Subprime Crisis - An Indian Perspective- Part II

Last week, our stock market suffered one of its worst ever weekly losses.

Investors/traders’ confidence is in shambles now.

Is it a Beginning of an End or End of a Beginning?

Main reasons for such a drastic fall are as under.

Ø Collapse of American Investment Banks.
Ø Delay in passing the “Rescue Bill” by the American Congress.
Ø Sell-off by US Investment Banks in Indian markets.
Ø Nuked Banks coming in the way of approval of Nuclear Deal by the American Congress.

Now, we are in a “Make or Break” situation.

Sensex is very close to its crucial lifeline of 12500 points and it is quite likely that the levels may be tested once again.

Now, the important question is, whether the support line will hold for the third time (in the recent past). Any fall below this line may take the Sensex even to four digit numbers.

Immediate outlook for our market is grim and there are unanswered questions how many more US banks are going to fail in the immediate future and how much more money is going to move out of India. Effectiveness of the rescue measures is also doubtful.

Traders are requested to monitor the market closely and initiate action only, in case, the said support line is firmly held or a positive trigger from US (Both on rescue bill and nuclear deal)

Cements, Infrastructure, Capital Goods and Power stocks will be in demand, in case of approval of Nuclear Bill.

Dalal Street is now looking at Wall Street (which is already in shambles) for further direction.

At the same time, we should remember one thing.

We should not confuse between the impact of collapse of US Investment Banks on our markets and the same on our economy.

Indian economy is not much dependent on USA like our stock market.

Our economic growth is more consumption oriented than being an export (particularly to US) oriented. In fact, fall in US demands will help us in containing our import bill as the prices of crude and other basic goods will come down.

Indian growth is more visible now than ever.

Friends are hereby requested to look at our countryside for the visibility of growth rather than looking only at cities like Mumbai and Bangalore.

Indians are now importing Audi like cars whereas western countries are getting ready to import Maruti (Alto New version) cars from India. This fact should give a lot of confidence upon ourselves.

Changing demography in India has resulted in more Indians thinking how to grow or how to make money. Traditional way of content-life style is not there now.


India will continue to grow, even though, the growth rate may slow down by some extent.

Still, India will be the one among very few countries to have growth in times of a global slow down.

At the same, major threats for our economy will be

Rising Inflation
High Interest Rates
Terrorism
Infrastructure Bottlenecks
Energy Shortage

Solving of these problems should be a priority for us rather than looking at American problems.


I am of the personal view that Investors may now look for picking some stocks of high quality companies , which can withstand the (likely to be) turbulent times in the (for at least) next two years.

There is a saying. “When tide recedes, one can see who is nude and who is not.”

I would also like to suggest investors to pick such high quality stocks, over a period of time and not at one time, to minimize the price risk.

Even though, gold prices may go up in the short run because of the uncertainty/negative trends in equity markets, gold is not considered as a very long-term investment call. Once US economy, rebounds gold may loss its shine.

However, a portion of investment portfolio can be allocated to Gold investments to moderate the portfolio risk.


Rupee faces strong resistance at 47 levels and there have been RBI interventions in the market in support of Rupee. As I already mentioned, Government may not be comfortable above 47 levels and there may be relaxation of ECB/FCCB/FCNR Deposits rules to bring in more dollars. Or, there may be relaxation in exports norms or tighening of import norms.

I would like to conclude that while investing in India, one has to concentrate on its own economic issues rather than looking at others. Let us concentrate on our Indian Companies where our hard earned money is going to be invested.

Let us stop worrying for others as we have our own tasks.



Wish you happy investment times.

New Investment Vocabulary

Bull Market:

Random market movement causing any investor (Layman) to mistake himself as a financial genius.



Bear Market:

A time period (duration unknown) during which, children get no pocket money, wife gets no jewels and the husband gets no sex.


Momentum Trading:

The fine art of buying high and selling low.



Value Investing:

The finest art of buying low and selling much lower.


Stock Editor:

The person who scratches his head wondering why his every prediction goes wrong.


Managing Editor:

The person, who does not know any thing and accepts that by telling every time, “I don’t know”


Rating Agency:

The firm, which has just downgraded your stock.



Analyst:

The person, who tells you to buy at higher levels and sell at lower levels.


Broker:

Earlier prosperous, now poorer than you.


Foreign Institutional investor (FII):

Last year investment bank, this year bankrupt.


Domestic Institutional Investor:

Last year investments, this year provisions


Mutual Funds:

Managing your funds in such a way that NAV always goes down regardless the market movement.


Retail Investor

Missing. Will be rewarded in case any one finds now.


CEO:

Chief Embezzlement Officer.

CFO:

Chief Fraud Officer.


Analysts/ Investors Meet

Events forgotten long back.


Large Cap Stocks

Stocks where fall is large.


Mid Cap Stocks:

Stocks behaving mad (Cap) way.


Small Cap Stocks:

Stocks getting smaller every day.


Multi-baggers:

Stocks that will make you (multi) beggar.


Future Stars:

Stocks you have to search for (in the sky) after some time.


Hidden Gems:

Stocks, which will be hiding from you (or you may hide from it) after some time.


Online Trading:

Internet Account of which, the password has been forgotten.


Tele Trading:

Phones switched off.

P/E ratio:

Percentage of price correction after your purchase.

EBITDA:

Earnings Before I (Industry) Tricked the Dumb Auditor.


Buy, Buy:

Taxi-wala giving tips.


Standard and Poor (S&P):

Lifecycle of an investor in a nutshell.


Stock split:

Your former wife and her lawyer split all your assets equally between themselves.




Market correction:

Day after you buy stocks.




Cash flow:

Movement of your invested money down the drain.

Subprime Crisis - An Indian Perspective-Part I

Genesis


Origin of Subprime crisis can be traced back to early 2000s when US was struggling under the grip of recession. Terror attack on September 11, 2001 added to their woes. Americans were asked, to enjoy their life by spending, by none other than their President, George W Bush. He said on 27.09.2001, “It's to tell the traveling public: Get on board. Do your business around the country. Fly and enjoy America's great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed".

(Source:http://www.whitehouse.gov/news/releases/2001/09/20010927-1.html.)


Recovery of US economy


Americans decided to spend their way out of the economic decline. “Shopping More” was linked to patriotism. Federal Reserve took the initiative by cutting the Fed Rate drastically (key rates went down to 1.00% levels). Rules were relaxed in lending to subprime borrowers ( who otherwise not qualified to take loans at market interest rates due to various risk factors like low income level, size of the down payment made, poor credit history and not so good employment status). Subprime Loans were lent as Adjustable Rate Mortgages (ARMs) wherein the interest rates were kept lower during the initial repayment period and which are subject to subsequent rate hikes.


Structure of Subprime Lending

Subprime Borrowers took loans to buy property (housing loans) then taken multiple loans using the same property as collateral (mortgage loans). As every body was doing the same, the demand for homes had gone up artificially, the buyers were able to sell the property at higher levels in no time. The cost of funds was minimal as the initial interest rates were much lower (because of ARM). Huge margin of profit was available in such transactions. Money thus earned was spent lavishly in the name of patriotism. Banks were happy to see their business growing up and the government/ Federal Reserve was happy to see the country recovering from recession.

Investment Banks (housing Harvard/Oxford/Cambridge educated employees) sensed a new earning opportunity. Subprime loans were securitized (loans were pooled and sold as new asset class) into MBS and other complicated derivative products.

Commercial Banks, Insurance Companies, Fund Houses and other Financial Institutions found these new avenues to deploy their funds profitably and trade actively.

Millions became Billions and Billions became Trillions.





New Global Order


Thus found liquidity started to flow across various other markets. Asian countries, BRIC countries, Commodities and other asset classes started to witness huge fund inflows. US Dollar was pumped into every corner of the world resulting in weakening of US Dollar against every other major currency of the globe.

India too received its share (Few billions of Dollars). Sensex grown up from 3000 levels to 21000 points. Experts gave various reasons right from “Structural Bull Market”, “Super Power by 2050”, “Most Happening Place”, “Strong Fundamentals driving growth”, “ Long term Growth story” etc etc. (You can refer to the other article of the same blog – Layman Brothers Versus Lehman Brothers).

Arab Countries and Russia gave Oil, South American Countries gave commodities, Asian Countries (especially China) became factories and India became a back office for Americans to sustain their high level of spending. Every country was praying day and night that Americans should continue to spend more. There was growth every where in the world.

Dr. Marc Faber concluded his monthly bulletin (June 2008) with the following:

'The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.'

It may not surprise us in case, some of the foreign countries, who see the above comment, may prepare themselves to export beer and prostitutes also to US. It is not an exaggeration. Such has been the mad obsession of the world economies to see that Americans continue to spend money lavishly.


First Blink


While the home prices were peaking out, Subprime borrowers started defaulting as they were not able to repay in terms of higher EMIs(introduced after a certain initial period). Delinquency rates started rising. Western Banks refused to accept the truth and number of new derivative products like CDS (Credit Default Swaps) were introduced to the market in the name of innovation.

In February 2007, Federal Reserve admitted for the first time that there was a crisis in US financial markets. A short term correction followed in all the global markets. It was a tip of the Ice Berg. But this time, the newly found bulls in Emerging Economies including India (You can refer to the other article of the same blog – Layman Brothers Versus Lehman Brothers) refused to believe that such crisis might have strong ripple effects across the world in the future.


Liquidity Crunch


Big liquidity crunch happened in USA in January 2008. Societe General Collapsed. Equity markets witnessed big sell off in December 2007 and January 2008 across the globe. Federal Reserve added fuel to the fire by cutting interest rates in the name of facilitating easy liquidity to the struggling banks.

Bear Sterns became bankrupt in March 2008 and one more sell off in equity markets followed. Equity story appeared to be over for the smart people. Investment Bankers and Traders found new investment avenues in Oil, Gold and other commodities. Various stories right from US attack on Iran, more demand from emerging economies and last but not the least, US hurricanes were spread to justify speculation in oil prices.


Final Burst (?)

Nothing could save US and European Banks (who later joined their US counter part in the lucrative (?) subprime business). Entire “Reverse Pyramid”, hanging over the “Subprime Borrowers”, collapsed on its own weight. Delinquency rate spiked up. There was neither buyer for homes nor borrowers for loans. Mark to Market Provisions mounted up. Series of write-downs in billions of dollars followed up. Provision requirements were much higher than the net worth of the banks. Losses run in trillions. Remember, GDP of of entire India is just around one trillion dollars.

US Treasury initially tried to bail out the falling banks by providing additional capital. This also could not help the sinking ship. Final Burst of the bubble has started in the current month (September 2008). This time, commodity markets also joined the other markets in the Big-Bang fall. Flight capital deployed in other markets including emerging economies returned back to US thus helping the US Dollar to strengthen against other currencies.

This is the story of the latest bubble formed by the oldest bubble maker i.e. Greed, which has made even the smartest people to fail one more time. Now there are certain question in our minds.

What is in store for India now (coupling or decoupling)?
Whether this Big Bang fall will continue?
What are the lessons for our markets/ traders/government/monetary authorities?
What should be new policies by our government/ RBI to protect the country and investors from such fall?
Whether to invest now or just keep in cash?
In case of investment, where to invest now, Gold or Commodities or Real Estate or Stocks?
In case of Stocks, which sector and what Company?


Now it is an open forum. Readers are welcome to post their views and suggestions in the comments box.

Part II on the same subject will follow soon.

An Open Letter To The Terrorist

Oh Terrorist!

I understand that you have become so much tech savvy nowadays and you spend majority of your time sitting before the computer terminals (by hacking wi-fi connections across Mumbai) and writing threat mails to the government authorities. Hence I hope that you may read this letter also, one fine day.

I think that you may be having few or all of the following objectives while planting the bombs.



1. Horrifying the minds of the people
2. Reduce the population.
3. Disrupting the communal harmony
4. Spoiling the economic climate
5. Drawing the attention of Politicians.
6. Media attention


I sincerely believe that you are not going to achieve any of your objectives for ever.


Do you think whether you can ever horrify the minds of Indian public? As a person, visiting Mumbai, you may be aware how it is horrifying to travel by Local Trains in the peak hours. Can you ever horrify us like we get while crossing Mumbai roads (any other Indian city for that matter) amidst the over-speeding vehicles? Your strategies to horrify people by planting bombs may work in western world. It may not work in India, because, we all Indians are the people who strongly believe in “Karma” i.e. if some thing has to come, it will come no matter through whom it comes. So your attempt to horrify the people’s mindset is simply a waste of time. It has been proved many a times by the affected cities returning to normalcy from the very next day of horror.




Do you know what is the population of India currently and at what pace it is growing up. Sooner than later, we are going to surpass China as number one populous country in the world. By planting bombs you kill around 30 innocent persons in one attack after toiling for 2 months. Do you know more number of people die every day in the railway tracks of Mumbai alone? Mind that few people killing crores of people is impossible.




It is a new competitive age. Religions are becoming more of a personal matter rather than public matter. We, Indians believe in all gods. We, Indians, will accept any and every god who can solve our ever-growing problems. Moreover, people are now clear that no god will be happy to see innocent people being killed by brutal means. I believe that your god too will not be happy for killing people for whatever reason.








Do you expect that your bombs will impact the economic growth? No way. Indian economic growth is irreversible because of the changing demography. May be the bigger bombs like inflation, high interest rates, fiscal/trade deficit and turmoil in the global markets may slow down it by a small extent. Your bombs are too small to induce any major impact on the economic growth. You would have seen every time, the Sensex firing up in the very next of day terror. Do you think that western countries will stop investing in India because of your bomb attacks? Don’t forget that troubled waters are the fishing ground for many foreign countries


You know, Politicians are very busy in fighting and winning elections (infighting too), forming coalition governments, sharing ministries, issuing statements, appearing in TV shows, celebrating various functions (both India and abroad) etc & etc. Your acts of terror may add just one more statement or counter statement from them


At the most, all media will be discussing about your act for two days and after that they may switch over to cricket, cinema, Aarushi/Grover cases.


Oh Terrorist. Stop your acts of terrorism. Return to the mainstream. It appears that you are having good web designing skills. You can join a software firm and earn decently. Have a peaceful life then which will be hundreds of times better than your present style of living.












Live and Let Live

Big Bang Theory and Small Unanswered Questions

Big Bang Theory says that Universe has expanded from a primordial highly hot and dense initial condition (from a definite point of time some time in the past) and will continue to expand in the infinite space.

Recently, Scientists in Geneva have launched preliminary experiments to test the Big Bang theory by building a giant contraption unit designed to smash sub-atomic particles into each other at extremely high speeds and create events that are similar to those supposedly occurred when the universe formed.

Definitely, this theory is a big one and the scientists too. But there are few unanswered small questions.

1. What was the origin of the “initial condition”?
2. How old the was “initial condition”?
3. Is there any boundary for the infinite space in which the universe is expanding?
4. If the universe is expanding in an infinite space, what was there earlier?

Laymen Brothers versus Lehman Brothers

The entire world is now talking about the Lehman Brothers Inc., which is the latest American Bank to fail. Experts are now discussing how the bank, which boasts itself the cream employees from world best universities, could have failed.

Let, the experts discuss about the Lehman Brothers and the laymen like us may discuss the story of the “Layman” Brothers who have also failed recently in our Indian markets. Layman is nothing but the person who lives in the heart and soul of every retail investor of India. The “Layman” comes out as a new “Avatar” just before the market is going to peak out. His brother is “Expert” who lives in the brains of Analysts (both Indian and Foreign), Panelists, Investment Bankers and News Papers/ News Channels. This is the story of the latest “Avatar” of “Layman”

Original Lehman Brothers

Our own Layman Brothers



The story of Layman Brothers

Once upon a time, a ‘Layman’ lived in India. He was following the stock market for quite some time without having invested in it. He wanted to earn from the stock market boom but always having fears of losing.

One fine day (early 2007) he decided to seek the help of his brother who is an ‘Expert’ and a living encyclopedia.



That point of time, entire world was discussing about “Yen Carry Trade” and so the Expert too. He explained Layman in detail about the vicious cycle of funds flow from one part of the world to another part and winding up of such fund flow is dangerous to Indian markets. He further asked the Layman to closely track the JPY-USD trade. Simple funda: If JPY appreciates our market will fall and vice versa. Layman was just wondering why he should not track INR-USD. But he didn’t ask because the person who told him to track was an “Expert”



Also came in, Subprime crisis. Mr. Alan Greenspan warned the world about the Subprime Crisis. Expert started analyzing the Balance Sheets of NYSE (New York Stock Exchange) listed Companies forgetting our own NSE listed Companies. Expert explained the Layman in detail about Securitization CDO, MBS, ARM, Credit Squeeze, Monoline Insurance, etc and etc. He also told that entire world would have problems because of housing crisis in US. Layman did not understand much about the terminology given by the Expert and whatever he knew was just that the tiny piece of land he had bought near his “Halli” was having good appreciation on paper within a short period of time from his purchase.He was wondering whether Subprime crisis would impact the paper appreciation of his tiny landholding. Layman started reading high-end financial magazines and tried to learn how to escape from such crisis. He could find no answer. Still, he was happy that he was too becoming a market player.

Till that point of time, Layman had not started to invest in equity markets. Expert was always telling bad things about the Indian market. He had given multiple reasons. EPS, P/E, Historical P/E, Comparison between BRIC countries (India was the costliest market then), infrastructure bottlenecks, political weaknesses etc and etc. Layman started wondering whether he could ever make any investment in the Stock Market, which never stayed at lower levels for longer period of time that was enough to make any investment decision.



Suddenly one fine morning (August 2007), Layman got a tip from a “taxiwala” about a fundamentally strong penny stock, which could give many folds returns. This time Layman ignored Expert's advice and invested a small amount himself on an experimental basis. From the next day onwards, the stock was always on upper circuits, Our Layman got excited and started looking for tips from every corner. He was also passing the tips to other laymen as well as to our own Expert. This point of time (December 2007) our market was firing on all cylinders whereas western markets were crumbling down because of Subprime crisis.



Now, Expert had to give up his own inertia and he had to concur with our Layman. He told Layman. “No need to worry. Subprime Crisis means cutting of interest rates in US, which will increase fund flows to India and take the markets further up”. Layman continued to invest on tips.

Expert had also devised a new “Decoupling Theory”. India is long-term story. Indian market is a structural bull market. India will become a developed country by 2050 (Layman started wondering what would be his age by then if at all he be alive then). Expert applied various technical and fundamental studies to discover that Sensex would reach 54321.09 points by 12.March.2045.

Every day, Expert discovered new hidden gems from small and midcap sector and termed them as multi-baggers. (For a brief period, Layman also became an Expert himself and started discovering hidden gems on his own).
There is a different story, which tells Layman became a multi-beggar after having invested in such multi-baggers. Expert analyzed the saving pattern of Layman and found that the equities form lesser part. Expert told Layman to invest 80 minus Layman’s age percentage of his savings in equities. Layman was now die hard to increase his equity holdings to maximum possible level. Never mind to borrow and invest.

Decoupling gone. Coupling came. Our markets started tumbling down (late January 2008). Initial Reaction from Expert was that the correction was due to some technical problems (margin issues and liquidity crunch due to Reliance Power IPO) and strong Indian fundamentals remain the same. Layman was complaining that he was not allowed to buy any stock, which he liked, and also available at damn cheap price because of technical snag happened at the broker terminals and stock exchanges. After the technical snag is over, Layman started to pick the stocks at damn cheap prices (10-20% lower than the peak levels). He was happy that he was entering the market at the right time and right levels. He started dreaming what he would do with the returns going to be generated in the next few years. For some time, he was in heaven.

Bear Stern came then (March 2008). Market crashed and the stocks crumbled. But Layman was unperturbed. Layman was wondering he should have more money to pick the stocks, which became further cheap. It was Expert’s turn to advise Layman to closely follow global market trends. Layman started gluing to News Channels throughout the day and night. Layman used to get up from bed with Nikkei in the early morning, have coffee with Kospi and read newspapers with Hong Seng. Layman had lunch with European markets and dinner with US markets.

Then came again decoupling but again on the wrong side. Global markets became stable whereas we continued to tumble down. Now it is the Expert’s turn to discover that FIIs are going out of India and entering into producer countries such as Brazil, Russia etc.

Along with earlier woes came, Inflation worries. For some time Expert was maintaining that inflation is going up because of “Base Effect”. Suddenly Inflation numbers jumped into double figures.


Expert visited vegetable shops, groceries and other stores and discovered that prices had already gone up.

American experts went one step ahead and said that the commodity prices went up (internationally) because Indians were eating more.

Expert declared that this was only a supply side problem and nothing to do with the demand side. Government has to remove the infrastructure bottlenecks and there was no need for increase in the interest rates. Layman too believed Expert’s thesis.

Federal Reserve Cut rates whereas RBI increased rates. Layman was clueless.

Expert maintained that Indian inflation is a supply side problem and asked the Layman to follow monsoon data that too for the “Agriculturally important states like Maharashtra, Andhra Pradesh and Karnataka”. Laymen started following weather reports.
As a result Layman went with Rain Coat and Umbrella on sunny days and without any protection on rainy days. Layman caught “cold and cough” and got a name “idiot” from his wife and other friends.

In the mean time, Layman was confused by the various government authorities giving different dates (right from October 2008 to March 2009) on which the double-digit inflation would become a single digit inflation. Interest rates hardened. He was wondering for the first time about the cost of funds involved in holding the investments, which have already depreciated by over 70-80%. Expert did not lose his heart. He maintained that Equities were best asset class in the times of inflation.



Expert later discovered that Indian inflation is”Imported Inflation” as International Oil prices are the main culprits for Indian inflation. Layman started wondering how it is so, as the Indian Government is not passing much of the international price rise to Indian customers. Even at this point of time, Layman dare not question Expert’s wisdom.

Many things happened in between, 1-2-3 agreement, survival of the trust vote of the central government, derivative woes of Indian Corporate, NSG approval of Indo-US Nuclear Deal, US Banks getting closed, IIP data, CPI , WPI, P-Notes etc and etc. Layman became a master of all and jack of none.

For every rise of 200 points (Sensex), Expert gave new targets 18,000, 20,000 and 25,000. For every fall of 200 points, Expert gave targets 13,000, 12,000 and even 9,000. Layman had not worked this much mathematics even in his school days. Layman started to sleep with a calculator.

On the global side too, Expert had earlier told Dollar was weakening against Euro and other major currencies because of slowing down of US economy. Now the same Expert has started telling Europe slow down is worse than USA and hence US Dollar strengthens against other currencies.

IT companies derive major part of their income from US and other western countries in terms of Dollars. Expert advised Layman to buy IT stocks as Rupee is weakening against Dollar. Later Layman found where is the question of more rupees when there is no Dollar to come in as there is an overall global weakness. Now it is Expert turn to discover the same and tell to sell IT stocks. Layman is wondering now whether to Buy Low Sell High or to Buy High and Sell Low.

Expert told commodities have a life cycle of 15 years, which has started only 3 years back. Still a lot more remains. Gold mines had been closed. No fresh oil discovery since forty years. No major mine discovery for coal, steel and non ferrous metals. Layman invested gold when it was at $1000 per ounce, which reversed to sub $800 levels in no time. Oil came back to sub $100 per barrel. Expert then declared that commodity price fall was good for India as it is a consumer/importer country. Hence, Stock Market should go up only.

Nothing has worked so far in favor of Layman’s adventure into stock markets. For every inch rise, there is a foot fall. To add his woes Subprime Crisis resurfaced and Lehman Brothers failed. Expert immediately revisited the Subprime crisis as the Lehman Brothers’ fall became an issue.Our market started crashing down once again. Expert's latest discovery is that our market is falling as Lehman Brothers are selling in the market.

But, Layman is not having any clue. He has started wondering whether there will be any take over bid for his own investments, from US Treasury Department as it did for Freddie and Fannie. . Now Layman is in a big dilemma whether he could ever sell his stocks in the market with a profit.

However, Expert continues to live happily as ever giving new definitions and discoveries for every rise and fall.

Happy Ending

Now it is left to the Reader to decide what's right and what's wrong with Layman Brothers and Lehman Brothers.

Rupee Fall

Rupee started falling against US Dollar in January 2008 and lost around 15% since then.

Causes

High Trade Deficit because of rising Oil imports. There is a lateral growth in demand for oil in India and the International Oil prices have also gone up significantly.

Sizeable withdrawal of FII money from India on account of profit booking and various other global and local issues such as Subprime Crisis, slow down in global economy on the global front and rising inflation and political instability on the domestic front.

Dwindling ECB inflows as the Capex plans slowed down in India

General strengthening of US Dollar against major global currencies like Euro and Pound.

Implications

Rupee depreciation is good for Exporters as they become more cost competitive in the global market and they get more Rupees for every Dollar they earn.

Rupee fall discourages imports helping the local industries. Thus there is a possibility of an industrial growth.

On the negative side, falling Rupee increases our already bulgy trade deficit and puts a burden on the precious Forex Reserves possessed by our Central Bank.

Rupee depreciation puts pressure on inflation, as we are an oil-importing nation. Any rise in oil prices will directly impact the inflation and thus economic growth.

Falling Rupee will drive away foreign investors and country will be deprived of the capital it requires to sustain the high growth.

Future beckons

Currently, Rupee faces huge pressure from the negative equity sentiments, ever increasing oil demand and low risk appetite of the foreign investors. There is a possibility of Rupee hitting 46-47 mark in the near future,

Rupee management is a tricky and crucial job of the Central Bank and the government. They may have to take a balanced view on it. Once the authorities find Rupee has reached an uncomfortable level, they may (or be forced to) ease the ECB control and the Rupee convertibility to bring back the stability in the Rupee market