Thursday, December 29, 2011

RUPEE Depreciation – “A shock or an Inevitable Event”

Rupee depreciation in the recent times has created a panic situation in the economic environment of the country. People and the economists want the RBI to intervene and curb the forex reserve outflows but is it really a long term fixation of the problem or just a short term fix? That is the question which can be answered by the macroeconomic conditions of the country.
The rupee fall was inevitable, as the ingredients for the rupee plummet were present in the economic conditions for some time and rather they were getting stronger by the each passing stroke of time. For the last year, portfolio flows have slowed down or even partially reversed, current account deficit is about to shoot beyond  3% target, euro zone crisis has reduced global liquidity, a lot of borrowings from 2007 are due for repayment now, our inflation has been high that has been reduced now and FDI has slowed down drastically. So, rather than handling the “Rupee” fall we should look into the underlying factors and should try to manage them for the further degradation.
Now, data from the RBI for rupee’s trade weighted REER against a basket of six currencies reveals a different picture. Till end October, the rupee had appreciated by over 8% over the average of 2004-05 and over 6% over the average of 2009-10. So, the long standing fact is that the rupee was overvalued for quite a long time and its fall is a long standing adjustment.
And most of the underlying causes i.e. inflation, euro zone crisis or repayments are either beyond our control or the effective measures have already been taken. So what is that which can bring the momentum back on the positive track? Ans:  Boost Inflows and the confidence (intangible but extremely important aspect) and for these two factors to kick start;

·         We need fiscal control and easier interest rate scenario coupled with boosting inflows,
·         Initiate Supply-side reforms and get the confidence induced back into the system.

FDI has always been the weak point for the India’s economy and we need to correct it now. It represents long term forex reserves and to improve it we need to take some tough decisions in quick succession. So far policy ambiguity has led to the investors’ weakening confidence and if it is aggravated then it would really become an appalling situation.
Rather Rupee fall can be used as a catalyst to address these deeper economic issues and get India back to the growing trajectory.
We need to act now! 

Thursday, December 15, 2011

!!!! Equity to Shrink !!!! ????

Volatility in the global market, unprecedented recession risks earlier and now the double dip worries coupled with the shrinking production has dented the sentiments of the investors across the globe. The dent in their views and approach as well as the changing demographic scenario in some part of the world has impacted the equity market the most and that too in a negative manner.
Barring an extraordinary change in investor behavior in the largest emerging economies, the role of equities in the global financial system will likely be reduced in the coming decade as per the new report from the McKinsey’s stable.  As emerging-market households attain a level of income that enables them to purchase financial assets, they are becoming a powerful new investor class, whose choices will help determine global demand for different asset classes. The actions of these new investors will, in turn, shape how businesses obtain the capital they need to grow, how other investors around the world fare, and how stable and resilient economies will be.
The financial assets held by the investors in the developing economies are growing at three times the rate with which they are growing in the developed economies.  By the end of the current decade, investors in developing economies will hold as much as 36 percent of global financial wealth, or between $114 trillion and $141 trillion.
 Investors in developed countries hold 30 to 40 percent or more of their financial assets in equities, but the investors of the emerging economies keep three-quarters of theirs in deposit accounts. While the use of equities in developing economies to finance growth and build savings is increasing, this evolution is taking place slowly. This likely results in a shift in the global allocation of financial assets toward deposits and fixed-income instruments and away from equities in this decade. This shift is being exacerbated by aging and other trends in the developed world that are dampening investor appetite for equities. As a result, equities could decline from 28 percent of global financial assets in 2010 to 22 percent in 2020.
But why the growing economies don’t go for equity investing? In a country like ours where majority of the investors are small or are for short term there must be a trusted, reliable and transparent market with strong protections and systems to provide easy market access. Rules and regulations may be are in place in emerging markets today, but enforcement is often unreliable.
In the meantime, even though total investor demand for equities will grow over the next decade, it will fall short of what corporations need by $12.3 trillion. This imbalance between the supply and demand for equity will be most pronounced in emerging economies, where companies need significant external financing for growth.  In Europe, however, allocations to equity are already falling, while the need for additional equity is rising for banks that must meet new capital requirements, making a significant equity gap likely.
The market will adjust to close this gap—but it will do so through a higher cost of equity to companies, which may prompt many firms to use less equity and more debt to fund growth. This will have ramifications for the global capital markets system, economies, and businesses alike.
Rest it’s never easy to predict what will happen in the coming decade, so better tighten your seat belts and get ready for a roller-coster financial ride, which is up the sleeve for sure.

Wednesday, December 7, 2011

“Options” option for Farmers?

India is an agrarian economy and more than 15% of our GDP is driven by agriculture. Farmers across the country are the spine of this sector and therefore for the maximum welfare for this community government usually comes out with new strategies/plans to appease them. And in this sycophancy whatever plans or policies are framed, the real beneficiaries are the deprived lot because of the leakages in the system and corruption across the entire process.
On the same lines of coming out with new strategies for the upliftment of farmers, a year ago an amendment bill was introduced in Lok Sabha and is examined by the Standing Committee for Department of Consumer Affairs for the introduction of ‘option’ trading in commodities, in addition to futures.
‘Options in goods’ as a method of commodity trading was banned sometime in mid 1960s because  that time uncertainty in the output, demand supply mismatch and high level of food inflation was prominent and ironically the same situation even prevails today. But the government is ardently supporting to induce ‘Option in goods’ because it would provide farmers with risk management tool which would be more suitable than ‘futures’ as they are not required to monitor the futures prices on a daily basis till the contract is settled.
Government belief could turnout to be fallacious as 80 percent of Indian peasantry constitute of small and marginal farmers who does not trade on futures on a daily basis. But one question which comes to fore when we talk about farmers and agriculture is “What exactly a farmer wants to produce to his/her full capacity?” and for sure the answer is a big NO to a risk management tool with which they can play. The answer to the above question is the infrastructure to protect their product from the climate uncertainties, the input availabilities in abundance and getting the right amount for their produce. These requirements are the very basic things to be corrected first before consolidating more systems on the weak fundamentals.
 ‘Options in goods’ type of risk management tool already prevail in the system as Minimum Support Price (MSP) which deals with providing guaranteed financial support when a farmer faces adversities. It safeguards the farmers’ interest with minimum financial requirement which he/she should get for his/her produce. This acts the same way as an Option would do when in place. So why the government wants to add another layer of guarantee over an existing layer? Why not the government should focus on consolidating the existing MSP system? Why not the government focus more on eradicating the supply chain leakages and making the system more transparent?
I personally feel that addition of ‘Option in goods’ would definitely incur some crore of rupees to make it completely functional, so it’s better to use that monetary resource on consolidating the existing structure rather than creating again a new cycle from the scratch. On the farmer’s point of view they want the correct price for their produce in the market which can only be possible if the right quantity reaches the correct place and for that ‘Options’ are not needed certainly.

Sunday, December 4, 2011

“INDIA to BHARAT” – The Changing Trajectory

The highest density of Mercedes cars in India in terms of per capita ownership and in terms of dealership is in Ludhiana, a poultry business in Coimbatore, a power equipment and turnkey solutions provider in Sangli, Indore based Prakash Snacks and many more like them have a lot in common: headquartered in non metro cities, run by entrepreneurs that are hungry for success and have risk taking appetite and also have received private equity funding. Private Equity funds are beginning to recognize the potential of the non-metro markets. It has started to acknowledge the mettle of entrepreneurs in these Tier II cities by showing confidence in their thoughts and the business plans and funding for their dream projects. Examples like: • Pedigree American venture capitalist Sequoia Capital has bought $30 million stake in Indore-based Prakash Snacks, makers of Yellow Diamond brand potato chips, as large financial investors aggressively chase tier-II food and beverage brands appealing to India's broader consumption story. • Fidelity Growth Partners invested $20 million in Shreem Electric Ltd, a power equipment and turnkey solutions provider in Sangli, Maharashtra. Examples like these have started to be come to fore in the last 18-24 months and these private equity (PE) deals show how capital has begun flowing to companies in low-income states and smaller cities. According to a recent study and rankings bi IFC is was apparent that five out of top nine cities in ‘ease of doing business’ are in non-metro cities, it also highlights the aspirations of the entrepreneurs from these cities to make it big which clearly attracts private equity to the real Bharat. Though funding the companies from these cities has its own set of challenges which results in small number of investors in these regions. Firstly the deal sizes on an average are smaller as compared to the metro cities, which brings to fore the gap in the confidence by the investors, though the confidence is getting established with each passing day. Secondly there is a lack of proper management system to be followed. The depth in the management decisions is quiet shallow and so the business relies mostly on the quick decision making processes and the entrepreneurial zeal but not on the system and processes. And lastly there is a requirement of higher level of commitment by the senior management of the businesses because PE not only provides the finance but also adds value, understands the entrepreneur’s mindset and emotions which could be different from the metro-city entrepreneur. Even though with these gaps still hampering the flow of investment in these regions, it still wide opens the door of opportunities for PE to invest their money in non-metro cities as the opportunity saturation point level is about to reach its highest mark in the metro cities coupled with the testing times in this economic turmoil environment. So with the robust demand for and growing understanding of the entrepreneurs’ businesses in these small cities attached with the flow of funds from Private Equities, the trend is now evident - Reaching the Real Bharat for the Real Opportunities.

Wednesday, September 21, 2011

Can Low Interest Rate act as a poison for Inflation ????

Every citizen of the country is bearing the brunt of the inflationary effect on the prices of every commodity now days. The Whole Sale Price Index is about to reach the double digit mark in the upcoming months and the most astonishing fact is that the Central Bank (RBI) has stated that the high inflationary effect would be felt in the market for the next two to three months from now.
But in these turmoil times there came a news stating that the Chief Economic Advisor Kaushik Basu has pitched for a reduction in interest rates to maintain growth. This statement made by the Chief Economic Advisor was a sort of eye catchy statement.
He said this while referring to Turkey, which had managed to tide over the problem of high inflation by reducing interest rates in the high growth period. Basu’s comments came within days of the Reserve Bank of India (RBI) raising key interest rates by 25 basis points, the 12th increase in the last 18 months, to contain inflation, which has remained stubbornnly close to 10%.
It can be deciphered by Mr. Basu’s statement that in order to tame inflation it is not only necessary to hike the Interest rates rather thinking of something out of box, taking leads from successful models around the world and using the strategies in such ways that it leads to a successful impact is of no harm at all. But when the Chief Economic Advisor made such statements then is it really possible in a country where the scams of all magnitudes have almost sucked around 3 lac crore of rupees in the last 2 years.
To follow such successful models and to imply these strategies it is really important to even understand that Government’s role is extremely prominent. Corporate Governance and sticking to the ethics is the only way to follow the models which can lead to coming out of the vicious circle of inflationary prices all around.
In Turkey when the interest rates were lowered down people were blessed with more money in their hands and which gave them an option to invest in diversified fields and in short it boosted the economy and a stable stance of demand and supply was created in the market which directly or indirectly reduced the inflationary effect and brought the prices down at an affordable level. If our Central Bank takes such decision then it becomes the onus of the government to use the available currency for the people’s benefit and not for their own.
But will RBI take such a decision? Will government be able to create a way for a clean and trustworthy mechanism? Will Anna’s movement for the corruption-free state reap the results? And will RBI think of any other step of taming this inflationary Tiger which is on a roar amid the possibility of another interest hike by the Central Bank in the upcoming months?
For answers to all these questions we need to wait till the next step taken by the Apex Bank or will it resort to the same old strategy of the interest hike which is not reaping much results?

Thursday, July 28, 2011


In this globalised economy external environment really plays a significant role in establishing the economic stability of a country. And when it comes to India, though economy is domestically driven, it has also been affected by the external factors of the world around.

• Greece’s, Portugal’s and Italy’s economic viability and fiscal position deterioration is a concern.
• Brent Crude price in the upcoming months is still above US$ 110 a barrel, even after International Energy Agency’s (IEA) decision to release 60 million barrels of crude oil.
• Food and Agriculture Organization’s (FAO) food price index is 39 percent higher in June 2011 as compared to the same time last year.

These are few international factors which are constantly applying a lot of pressure on the Wholesale Price Index which can be clearly visible through the inflationary trend remaining close to the double figure and hovering around 9.2 to 9.7 percent.
Domestically if magnified then it points out to certain factors which are responsible for the Reserve Bank of India’s (RBI) tightening of the key rates by 50 basis points(bps) resulting in Repo Rate hiked to 8% from 7.50%, Reverse repo amounted to 7% and Marginal Standard facility rose to 9%, are:

• Index for Industrial Production (IIP) was revised and suggested that some moderation is under way because the index dropped to 5.7% as compared to the 10.8% in corresponding last year.
• Though monsoon throughout was even but the south west monsoon has been a tad less than normal and the KHARIF sowing this season in July, 2011 with respect of pulses, cereals and cotton has been lower as in the same period last year.
• Fuel inflation rose in this quarter of 2011 but the aviation turbine fuel got spared.
• Wholesale Price Index was 9.7% in April, 2011 and the Non-food manufactured products inflation was 7.0 per cent in the same period.
• The Reserve Bank’s estimates show that the total flow of financial resources from banks, domestic non-bank and external sources to the commercial sector during Q1 of 2011-12 was lower at 2,40,000 crore as compared with 2,63,000 crore during the corresponding period of last year.
• The Minimum Support Prices of Wheat and Pulses also rose coupled with the Wage-Price Spiral factor also ignited the inflatory prices in the market.

All these factors clearly highlight the pinch a common man’s pocket would be feeling looking at the prices of some of the essentials or the basic necessities going up ranging from milk prices to the fruits or vegetable prices. And also because of further tightening of the rates by the central bank commodities from automobile to acquiring of house all would be dearer to the consumer.

Although the key rates hike is to fight the inflation down but the domestic steps taken by RBI can’t be solely responsible for taming the inflatory tiger in the domestic market rather the appropriate monsoon for the bumper crop and the tamed fuel prices globally also are imperative factors to be considered.

Friday, July 8, 2011

A Supplicant or a Powerful Countrymen ????

A farmer with land is really sought after today, irrespective of the land being fertile, what the government wants is just acquisition of the land for so called development to happen in the rural areas. I find it ironic, first break the grip of the sole livelihood earner of the family, snatch his assets and then vows to make progress.
This is just an example of what is happening in almost every state of our country. Government sometimes forgets that it is for the people and only for them. Increase in GDP of the country is not the sole criteria for making progress in the society rather increasing the satisfaction level and happiness across the countrymen is the lynchpin for success and development. And to make this possible government needs to unsolve many labyrinths but two basic mazes are discussed as follows:
• Land Acquisitions- As we talk about land acquisitions in India adjectives like forceful, brutal, cruel, barbaric, inhumane and many more words strike our mind and all these harsh adjectives are against farmers (one of the poorest section of our society) and pro industrialism. Singur, Nandigram and Greater Noida are some of the examples to tell the gloomy tale but still the government has not come out with a deal to balance the required development which is essential for the country and the rural domain progress. Land is extremely vital in this densely populated country but snatching it from some and offering favor to others is not at all acceptable.
To sustain the farmers’ happiness and income generation factors making them the stakeholders of the particular project for which their own land is used would be the best possible solution rather than snatching their land and letting them die as a pauper.

• Inflation- Whether a person knows about it or not but this word is in everyone’s vocabulary these days. In any casual talk between parents or friends or any common man this nine letter word has its place. The reason is, everyone in the society has its burden on their shoulders. From corporate to the normal society everyone is bearing its brunt. And in this stage a customer is turned into a supplicant and is forced to ask for subsidiaries in every essential item for its living from the government and even in subsidiaries when the government decontrols certain products and black marketing, hording happens then it becomes a situation of grid lock and so where to go? How to insulate oneself from this price rise? In this situation again a systematic involvement on IT with a gargantuan scheme of using AADHAR in distribution of subsidiaries would be really affective as it is thought now by the apex body but its implementation is still a concern.
So to empower the countrymen with choices in their lives solution of these two basic but sever problem is a must. And once these roadblocks are solved and action is implemented to minimize them, the country’s happiness index would definitely improve dramatically though GDP would continue to soar (but GDP is not the real success for a country).

Tuesday, May 24, 2011

The Real Happiness!!!!!

Six figures salary, a beautiful small yet well designed and eqipped home, a small car, beautiful yet stylish laptop, small and happy family et on et on et on.... Desires would never cease and mind would never stop asking for more but have you ever thought that with this comes many problems attached to it; taxes(and there are many), maintenance of all the assets which is really time consuming and infinite family concerns. After facing all the challenges with great zeal there is no energy left to celebrate the real happiness. So if this is not the real elation then what is that which we are living for?
Now when your child speaks truth, when a butterfly enters your room and you get amazed to see its color glutted body, when you make some little child happy in slums when you give him a small toy car and he/she says THAKU to you and runs that smile on your face is the real curve of your lips, that is the real zeal and that is the true happiness....
But how often do we encounter with trueness of our elations - that is a rarity and its an elusive dream. But to make these rare moments turn to often moments we much react to our inner humane behaviour. We must contribute towards the situation to improve it and if we cannot take an active part in it then we must try to make that aware in the masses which could give it back to the society. If you cannot create a change then don't try to hamper others too. But just not trying and loosing hope would not make you really elated though material happiness can be achieved but for true happiness you have to strive for and walk that extra path out of you materialistic life...

Sunday, May 15, 2011

Suffocating Freebies!!!!!

Not indulging in who won and who didn't, not counting the differences in the votes, not even evaluating the results of the polls through this article rather it's essence is in the backhand activities of our so called The Knights and their clunkers. The politicians in contemporary India believs in one time service(just b4 the elections) and succeed in their motives.
The same vicious circle was woven this time again. Distribution of coloured television sets, rice, wheat etc etc and on and on..... Last time expenditure on freebies to woo the voters or customers (to ask for favour in return) and you are in the main frame as the Chief Minister of a state. Some freebies are tangible in nature in some states and some are intangible in nature. Promises and short term development ideas, CHANGE and many more intangible views are sold to collect votes and you know what, you are in the frame........ Just be a great orator and throw your freebies of any nature, the better the quality of either the speech or the product the more votes you get.
I am not here to blame the candidates who are willing to sit on that powerful seat but the blame is on the people of our country. Just for a tv set give him/her the vote? What after the results of polls are out and a candidate becomes a CM? Then the same old story for the next 4 years(roads pathetic, sanitation appaling,eduaction for the children at naught etc) and then freebies in the last year.
People be pragmatic, suffering of 4 years and 1 year of products and you are satisfied and shower votes. Through freebies the candidates are stifling your democratic right and you open your mouth with same pleasure to get stuffed with the same old dirty cloth which was used 5 years back.
Stop opening up the mouth now!!!! Better starve for a year but give your blessing to a person who can take the same old cloth, wash it for you, give it to you with a neat fold to use as a hankerchief............. Think and Act

Saturday, May 7, 2011

Abbottabad or Obamabad??????

Last week in the wee hours of the day The most wanted terrorist on this earth was brutally shattered to death by the US SEAL(Sea, Air and Land) warriors and the most shocking aspect of this hollywood type cinematograpic killing of Osama was that the territorial head where the Mission Geromino was accompalished were not aware at all of what was happening in Abbottabad.
What can be said through the same? What can be brought out to the notice? What makes the attack on Osama more shocking? The answer is the Americans' authoritative dimension. Blocking Pakistan's radarfeeder to give way to their coverted mission justifies the same in a potent manner. But we can not blame Americans' for the same and Pakistan also should not cry for their breach of sovereignty.
Now after the attack fingers are pointed towards India and its capability to carry such attacks when we are sure that it's most wanted man is residing in it's neighbour but I feel that the situation in which Ameriis and in which India is completely different. With Dawood our Kashmir regions peace and prosperity is also linked and it can not be solved by a coverted mission by killing a being, this labyrinth (Kashmir) can be solved only by state to state talks.
Situation moulds the way to deal with it. But hats off to such a gutsy showcase of precision and bravery of SEALS or USA or OBAMA!!!!!!! The place should be named now OBAMABAD from ABBOTTABAD and even it will not be named after Obama this name will be written in the history of Abbottabad.......