Vinny’s Blog

Sorry for being absent this long ( 2 weeks almost I guess !!) but you’ll see what I was busy with…this is a very long article and so I decided to publish it over the weekend. Only so that you can relax and take your time to read as this is going to take a bit of your time to digest. Article is only useful if you’re interested in Indian ( 3rd largest Asian)  economy in the world. I had request from a few to write something about it……finally, here it is…!! Happy Reading !!…I hope you enjoy it !! No time for spell check and/or grammar check ( never do anyway sorry !!) .

I made a post earlier back in Nov-2008 about Indian Economy click here to read that post. It has been almost 3 months since so it’s time we update picture of Indian Economy again. A lot has changed since November of 2008, in India and all over the world.

Back in November I already described what I saw in India, big ticket items were not moving fast enough, jobs were dis-appearing and interest rate cuts were talk of the town. Since then I had been waiting for the data to pour in to see trend/direction and finally it seems we might have enough data to look at a big picture of Indian economy. Today we will look at over all health of Indian economy Jobs, Real Estate, Bank & Government Budget, Currency, Gold…did I miss anything ? …I guess this is enough material to paint a big picture.

Job Market - In case of India and China where emphasis is more on exports -  either export of goods or services. In both cases of exports - Job are given very high value. In India the job market is shrinking and it’s shrinking at an alarming rate. Needless to tell you what it means for Indian economy….I will explain  short term gains and long term losses of this scenario later. India’s biggest export is people..it exports people all across the world IT, construction, health services, students etc. IT people and services - lately have been one of the biggest exports (revenue wise), 2nd is construction, all that construction in Dubai and other Gulf areas….followed by individuals in health care and then students.

Earlier it was thought that….

Meltdown can be beneficial for India
The ongoing financial meltdown could be a boon for the Indian IT industry as it offers an opportunity to foreign players to invest in India in order to cut cost, an industry expert said.
“The global meltdown is an opportunity for our customers to come to India. We (IT industry) faced a crisis in 2001. Our customers came to India in 2001,” IT company Mastek founder Ashank Desai told reporters at the India IT 2020 Conference. Reference¹

…This concept is doomed…meltdown is not beneficial for India…..and what Satyam has done is not encouraging for Indian IT market in anyway. Foreign institutes have black listed some companies now, which prevents them from doing business with those agencies (some very large) in future….alerts on  IT slowdown started to appear back in November 2008 itself…

Indian executives sound crisis alert
By James Lamont, Joe Leahy and Amy Kazmin in New Delhi, Last updated: November 18 2008 15:31
Leading executives in India’s property and information technology industries gave warning on Tuesday of a severe slowdown as the global financial crisis spills over into one of the world’s most prom­ising emerging economies. Reference²

India’s IT executives fear worst slowdown
By Joe Leahy in New Delhi, Last updated: November 18 2008 16:18
The mood during the panel hearings at the World Economic Forum this week in New Delhi was complacent, even self-congratulatory. Reference³

But that was November and those were warnings….now we are in Feb-of 2009 so how are we doing ? well…those alerts as it turns out were right….let us see forecast from two software giants ahead and rest is history these 2 companies indicate the trend in IT industry wide. Satyam is of no use,  so it is left out for consideration. IBM is also contracting and it’s true for Wipro as well, that completes IT picture ( I guess ! )

TCS saw project cancellations in past 4 weeks: CLSA
By Reuters Tuesday February 10, 01:00 PM
Mumbai: India’s top software services exporter, Tata Consultancy Services, has seen project cancellations in the last four weeks, brokerage CLSA Asia-Pacific Markets said in a client note, citing a senior TCS official.
Reference⁴

IT export growth may lag forecast: Infosys
Thu, Feb 5 05:01 PM
Growth in Indian exports of software and services this fiscal year could be below a downwardly revised forecast from the peak industry body, a senior official of Infosys Technologies said on Thursday.
Reference⁵

Wipro expects lower sales and tough times
Author: Karl Flinders Posted: 10:58 23 Jan 2009 Indian IT supplier Wipro technologies has warned of tough times ahead despite reporting a 9% increase in profit for its latest business quarter.

The company reported profit of $185m but said it expects revenue for the next quarter to fall over $200m to $1,04bn compared to $1,12bn in this quarter.

Azim Premji, chairman at Wipro, said: “We are living in tough times the macro-economic challenges are significant and impacting businesses across segments.” Reference⁶

– IBM was already cutting jobs earlier in the year…2008

Tata Consultancy, IBM Dismissing Workers In India
Ruth David, 02.05.08, 11:15 AM ET Reference⁷
Dubai: With large scale layoffs in the Gulf triggered by shelving of mega construction projects touching off panic among Indian workforce, a top diplomat here said they were monitoring the situation closely.

–OK there you have it 4 major power house IT companies from India all are indicating a slow down that has already taken place and is getting deeper….biggest blow is coming from America where 1000s of software professionals are laid off…where do they go..? if they are on H1 they head back home….

Microsoft’s announcement it will lay off 5,000 in its biggest-ever job-cut rippled through the Seattle area on Thursday, further unnerving residents of an already-bruised city of just over 3 million.

- Microsoft here is just an example, there have been 1000s of layoffs all over US, Citibank, Chase, Merrill, Bear, Lehman, American Express..the list just goes on…..since focus is always on America other countries are ignored but remember,  same companies do business in UK, Hong Kong, Singapore, Malaysia, Thailand and there too they hired Indian software professionals….so the damage is more wide spread, it’s bigger than it seems.

To make matter worst for Indian job market, Job losses are not limited to IT sector only…..here is an indication of what is going on in other sectors….construction and textile for example.

10,000 Indians laid off in United Arab Emirates
Tuesday, February 10, 2009 7:35 PM IST
BANGALORE: The situation is now worse than ever in the Middle East for thousands of Indians, especially workers from Kerala and other South Indian states. Reports project that up to 55 per cent of the construction workforce in the United Arab Emirates could be laid off, with thousands already having lost their jobs due to the global financial crisis. Reference⁸

India expects to lose half million textile jobs by April << See it’s bigger than IT >>
By Michael Kitchen, Last update: 9:30 a.m. EST Nov. 21, 2008
NEW YORK (MarketWatch) — The Indian textile industry, a major foreign exchange earner for the nation, will lose half a million jobs by April 2009 due to the global

– All these job losses abroad…are going to create tremendous….reverse migration….

Downturn may trigger reverse migration
6 Feb 2009, 2100 hrs IST, Sanjeev Choudhary & Shreya Biswas, ET Bureau
NEW DELHI: The global crisis is slowly turning into a migration crisis with thousands of expat Indians likely to return home from developed and emerging geographies in the West, Southeast Asia and West Asia where governments are under pressure to salvage jobs of the native labour force.

A serious downturn in these markets, which has already taken its toll on millions of jobs across the globe, now threatens to give rise to artificial barriers that restricts mobility across borders. “Increasing pressure to employ the local workforce is gaining ground across world markets,” says Delhi-based think tank Indian Council for Research on International Economic Relations (ICRIER) director and chief executive Rajiv Kumar.
Migration to the Gulf, which employs the largest number of Indians outside the country, has helped several families tide over poverty in the past few decades. There is no centralised data of the number of Indians working abroad, but the ministry of labour web site suggests that at least 30 lakh Indians, mainly construction workers and nurses, are currently employed in the Gulf.

-And this reverse migration is a real threat to India…upon return these people need to then find jobs in India….Situation is that companies/countries abroad are taking steps to relocate jobs to their own countries for their citizens. Check this out..even though labour may be cheaper in India, some companies are not considering that as an option to keep jobs in India anymore….

United Airlines shuts down call center in India
The jobs in India will be transferred to call centers in Chicago and Honolulu, Hawaii, and filled by workers who now handle reservations, the Chicago-based airline said. Reference⁹

In addition to that…..in US now congress is pressing for new Visa rules…

US proposes change in H-2B visa norms
Washington, August 16:: The US Citizenship and Immigration Services (USCIS) has announced a series of proposed rule changes that will streamline procedures for hiring workers, including from India, under the H-2B visa program.

The USCIS has also called for not issuing the H-2B visas to citizens of countries that are determined to be consistently refusing or unreasonably delaying repatriation of their nationals from the US with deportation orders. Reference¹⁰

The H-2B visa category allows U.S. employers in industries with peak load, seasonal or intermittent needs to augment their existing labor force with temporary workers. The H-2B visa category also allows U.S. employers to augment their existing labor force when necessary due to a one-time occurrence which necessitates a temporary increase in workers. Typically, H-2B workers fill labor needs in occupational areas such as construction, health care, landscaping, lumber, manufacturing, food service/processing, and resort/hospitality services.

H-1B hiring ban sought for US cos getting bailout
Updated: Feb 06, 2009 at 1252 hrs IST
Washington: In what could be worrying for Indian software professionals, two US Senators have introduced amendments to the economic stimulus bill, which if passed would prevent US companies receiving the federal bailout money, from hiring H-1B visa holders.

– All those companies which are taking bailout money from US government may not have the flexibility to retain or hire H1B visa holders any more….

H-1B visa ban for bailed-out US firms irrational: Montek ,18 Feb 2009, 1754 hrs IST, PTI
NEW DELHI: The government has termed as “economically irrational” the provisions that debar US companies from hiring people holding H-1B visas if
they take help under the $787 billion economic bail out package, which President Barack Obama has signed into law.
– Now let us look at some internal job losses due to global economic situation.

Indian businesses forced to cut staff
By James Lamont in New Delhi, Last updated: February 5 2009 17:35
Key sectors of the Indian economy shed half a million jobs in the final three months of last year as the global slowdown took its toll on one of the world’s fastest growing big economies.
- I guess this is enough to indicate that job losses are in millions from high paying to low paying across all sectors and that is not a happy news…jobs fuel demand, that supports consumption and supports other jobs. You know the cycle…biggest impact of job loss is to housing industry…house on loan or mortgage gets impacted first. This is one of the biggest payment for anybody from their income. So now let us look at Real estate sector in India. Housing market cannot flourish without jobs….if this relation is true than real estate cannot do good….let us look at it next and find out if it IS true.

–Real Estate in India.

Real estate in many Tier-I and Tier-II cities in India had seen record appreciation till as late as first quarter of 2008. But that appreciation was not in line with economic situation and market conditions or what was waiting to happen everywhere else in the world. When you hear that visitors from London find Bombay or Mumbai an expensive place you know that fundamentals are whacked.

Mumbai - the city of foreign dreams
By Sanjiv Buttoo ,BBC Asian Network, Mumbai Deepa Mehta
Mumbai has much to offer its expatriate residents
For the thousands of people who leave the UK each year and head for a new life in India, the world’s largest democracy is certainly no third world option.

The growing numbers of British expatriates living in Mumbai (Bombay) - locally known as the Manhattan of the East - say that life here is not a cheap alternative.

- And once market conditions get in line with economic reality INEVITABLY correction takes place….

India realty sector set for correction - report
Mon Nov 24, 2008 12:56pm IST
MUMBAI (Reuters) - India’s property market is poised for a correction and residential property rates will have to drop by up to 30 percent in some geographies for affordability to catch up, a report on said on Monday.
Tight credit, small bonuses hit real estate
Mon Nov 24, 2008 2:15pm IST
Land prices quadrupled in some areas in the last three years, and commercial and residential spaces in Mumbai have become among the world’s most expensive.
Rising incomes, low interest rates, a soaring stock market and foreign investment fuelled the boom. Now, some fear a bust.
“Besides the liquidity crunch, there is a real crisis of confidence,” said Anshuman Magazine, managing director for south Asia at real estate consultancy CB Richard Ellis.

…Latest predictions are that corporate earnings will continue to be lower, which again means lower wages and bonus which will put further pressure on real estate market.

India’s Corporate Earnings Slump May Continue, Citigroup Says
By Berni Moestafa
Feb. 6 (Bloomberg) — India’s corporate earnings may keep declining next business year after shrinking for the first time in six years in the third quarter, Citigroup Inc. said.

–Question is - How low can real estate go ? well it can go down by ANOTHER 20-25%

Indian property to fall further before funds bite
Fri Nov 21, 2008 7:19pm IST
By Dominic Whiting, Asia property correspondent
HONG KONG (Reuters) - Indian property prices are likely to fall by a quarter in the coming year as the global economic crisis saps homebuyer confidence, adding to the problems of capital-strapped developers.

Property prices may come down by another 20%
4 Feb 2009, 0320 hrs IST, Rajesh Unnikrishnan & Supriya Verma Mishra, ET Bureau
MUMBAI: Real estate developers are likely to cut home prices by an additional 20% in a bid to lure purchasers and customers who might otherwise
shift to other financial commitments, as the current fiscal draws to a close in March.

With banks also starting to cut home loan rates, people close to the development say that the first quarter of the next fiscal could see a substantial jump in home sales.
Property rates across the country have fallen by about 15-20% with the decline in the economic situation.
According to analysts, the impact from the ongoing financial crunch and mounting pressure from various other circles, could peak by the end of March. That’s when many developers will be forced to sell unsold stock at a much cheaper price, said one executive with a leading developer.

– OK, confirmed real estate market is not in a good condition…values are falling, those who bought at peak or near peak will see their equity evaporate and will hold a house less in value than what they paid for. Question is will they continue to hold or sell, if they sell market will deteriorate further (as the case is in US or else where). But for that we would have to wait and see….generally speaking people in India don’t sell assets in classes such as house, gold. They tend to look at it as long term, permanent investments, few play rollover game and they are about to pay the price for that game.

– Finally it’s true that If jobs are not being created and wages are getting lower, real estate can not do well, what’s next ? Banks ! Rrrright !! can they do well ? again if the relation is right between jobs, real estate and banks…banks cannot not and will not do well either..they are the ones who loaned all the money !! So let us look at them….next…..

–Banks in India.

– Once again thoughts about India and it’s banking system were that banks are better placed. But are they ?  ya, may be………..

India better placed in financial system
MUMBAI: In the current financial crisis the world-over, Indian financial system is in a better position with strong regulators, compared to the other global economies, Marti G. Subrahmanyam said here on Saturday.
“India is having one of the best regulators in the world. Former Reserve Bank of India Governor Y. V. Reddy was considered as one of the best central bank governors in the world. Present Securities and Exchange Board of India Chairman C. B. Bhave is a highly experienced market regulator,” said Prof. Subrahmanyam while addressing IIM Ahmedabad Alumni on “The current financial crisis.” He is the Charles E. Merrill Professor of Finance, Economics and International Business at New York University’s Stern School of Business. On the Satyam debacle, he said that independent directors should resign when they found themselves uncomfortable to continue on the company board.

…Indian banks were considered to be in better position largely because they had not bought toxic US mortgage paper for investment and that is true so the idea that they are better is limited for that reason only. But there is plenty of risk lurking in domestic market itself with job losses, real estate, frauds, foreign debt etc…that can make Indian banks weak. Satyam is just one such company….that scandal happened to be right at the time of  worst liquidity and credit crisis that is going around the world.

-What happens to banks when they don’t get their loan payment back ? they obviously get sick.

Home loan defaults on the rise
4 Nov 2008, 0130 hrs IST, Namrata Singh, TNN

MUMBAI: Defaults on housing loans are said to be on the rise, with individuals facing the brunt of the high interest rate regime. An indicator of this is the fact that of the total security receipts (SRs) of Rs 1,100 crore issued by Asset Reconstruction Company (India) Ltd (Arcil) to banks between April-September 2008 for acquiring bad loans 20% were from home loan defaults. << 20 % is very high percentage and this is from Nov-08, I am sure job conditions since then have gone from bad to worse so this number is only set to rise , watch interest rate drops during 2009, they have to either jobs come back or interest rates have to drop..no other way out of this situation..>>

–Here is another problem for Indian banks…

Indian banks’ big challenge: Non Performing Assets

December 28, 2008 11:14 IST
There is already a visible strain on consumer, credit card and vehicle loan portfolios and many banks have taken conscious decision to scale down their advances to risky sectors. Some banks have also revised their credit growth targets downwards as the year has come to a close

Gross NPAs of commercial banks in FY08 escalated by Rs 6,136 crore (Rs 61.36 billion), according to figures released by the Reserve Bank.

Though there was no need to be unduly alarmed, banks need to follow certain standard parameters to ensure the quality of their lending portfolios, Mallya. Despite pressures emanating from global financial markets, Indian banks witnessed a healthy 25 to 29 per cent average growth in credit disbursals, primarily in housing, auto and infrastructure.

–Let me explain - article above is from December and it contains mixed news….strain on consumer,credit, vehicle loans…typically layoffs or job cuts don’t force any one to stop payment that month…people still make payments for as long as they can, they start to be late in payments ( comes the word strain…) and then later on they skip payments completely (..default…)….again if that relation is linear and true then in following months…bank’s non performing assets should grow. so let us look at it in the following months….

Tuesday, Jan 27, 2009 Gross NPAs of banks inching up << Bingo >>

Chennai, Jan. 26 More borrowers seem to be skipping on their dues to banks.

A quick glance at top banks, whose third quarter results are available, indicates that the non-performing assets (loans that are not being serviced, i.e. either the principal or interest or both are not paid by borrowers within 90 days of due date) are going up.

Gross NPAs for about eight top banks (five from the public sector and three in the private sector) have increased significantly over the past one year – by about 30 per cent.

India to infuse 38 bln rupees into 3 banks
Wed Feb 11, 2009 4:48pm IST, By Manoj Kumar and Rajesh Kumar Singh

NEW DELHI (Reuters) - The government will infuse 38 billion rupees into three state-run banks by the end of March 2010, a minister said Wednesday, helping their shares extend gains in a market that ended almost unchanged.

–And here is yet another ( bigger) problem..for Indian banks….

$52.7 billion payback time for India Inc
The liquidity position in the Indian financial system may face fresh challenges if foreign banks fail to renew $52.7 billion (Rs 25,000 crore) in loans taken by Indian companies. The loans are up for repayment in the next seven months.

–Let me explain what this is..in last few years..Indian companies have acquired a lot of foreign companies Tata acquired, Jaguar and Range Rover ( I like to call it Game Over ) motor company in UK. They also acquired Corus steel, Tetly Tea company, Bharat forge acquired some forging companies in Europe, lot of IT companies bought other smaller and medium size IT consulting companies abroad….since credit is frozen in Western world and no bank is ready to extend credit. These companies, when debt gets due for rollover would be looking inwards to Indian banks for support for payment…that bill is approximately $52.7 billion.

–These factors and expenditure on security (Army, Navy and Air force that itself amounts to 3% of GDP) combined together is going to push the deficit….deficit is money that one is trying to spend that they don’t have….it generates debt…….!! When economy is healthy asking for money ( printing debt) is not much trouble..in adverse conditions it’s a problem…..will a bank give you loan KNOWING THAT YOU ARE ABOUT TO LOOSE YOUR JOB ? similarly will like to buy bonds of a country knowing that country is not doing well ? exactly..and so printing debt to raise new money gets difficult.

Total deficit may reach 10 pct of GDP-India
Wed Feb 18, 2009 6:12pm IST
TOKYO (Reuters) - India may see a further downturn in investment demand before it turns up and growth may moderate more than expected, while this year’s total fiscal deficit could reach 10 percent, the Reserve Bank of India (RBI) governor said on Wednesday.

…During adverse conditions loans tend to be more expensive….

Indian Yield Curve Set to Steepen on Flood of Debt (Update1)
By Anil Varma Feb. 3 (Bloomberg) — Investors are demanding the largest interest-rate premium in almost seven years to hold India’s 10- year bonds over one-year notes and the spread may widen as a flood of new debt saps demand, Standard Chartered Bank Plc said.

..Higher interest rate in adverse conditions is a problem…it’s a concern….

Indian budget deficit raises concern
By James Lamont in New Delhi,  Last updated: February 16 2009 17:42
An interim budget delivered by the Indian government on Monday ahead of parliamentary elections sparked fears that the country may return to an era of big budget deficits as it tries to protect itself from the global financial crisis.
Pranab Mukherjee, the acting finance minister, said India had temporarily set aside its tight public spending targets, recognising that a high fiscal deficit was “inevitable” to weather the challenges posed by recession in big economies.

– So there you have it…overall does not look like banks are doing well. When compared with banks in Western countries Indian banks are doing OK that’s for sure. But that is about to change in 2009, their own domestic problem is growing and if world wide economic conditions don’t improve (which improves hiring of Indians abroad and locally). Indian banks will suffer as well…..how much, how deep remains to be seen.

–Currency, Aaa Ha !

- So far we have seen that Job market is contracting and real estate is in stress, banks have credit, loan default problem growing for them…..now let us look at Currency….I am presenting my view on it but let me tell you one thing right now. That you must draw your own conclusion on this. Because boy ! oh boy !! this is a very difficult and confusing subject. I will prove it to you very easily…just read following two articles which were published pretty close to each other (within weeks) one predicts Rupee will go up by 9% and the other one predicts it will go down by 10%…both articles are from reputable companies.

India Rupee May Rise as Growth Prospect to Spur Flows, ING Says
By Anoop Agrawal, Jan. 26 (Bloomberg) — India’s rupee may rise almost 9 percent from today’s level to 45 per dollar by June 30 on speculation U.S. stimulus measures will support global economic growth, according to ING Vysya Bank Ltd

Indian Rupee to Drop 10% to Record Low, HSBC Predicts (Update1)
By David Yong and Patricia Lui

Feb. 13 (Bloomberg) — India’s rupee will weaken almost 10 percent to a record low of 54 to the dollar by the end of the year as the worldwide credit crisis curbs foreign direct investment, HSBC Holdings Plc said.

The rupee may also extend last year’s 19 percent slide as employers cut jobs overseas amid a global recession, reducing remittances from Indian workers abroad, Richard Yetsenga, HSBC’s Hong Kong-based strategist, wrote in a research report today. The U.K. bank revised its rupee forecast from 45, HSBC’s Singapore-based economist Robert Prior-Wandesforde, who co-wrote the report, confirmed in a phone call.

–As per these articles. On Jan 26 Rupee will rise by 9% …..Feb 13th 2 weeks later Rupee will loose 10%. This is slippery slop, if you play currency market I would suggest exercise caution. No country wants to see their currency value going high as that will only cause more job losses and bigger defaults on loans…but in the end some currencies will have to take that crown (higher value)….in 2009…all countries will be adjusting their currency values frantically through out the year. Unless they come up with some alternate world level currency ( other than USD) or a new system or something else…which is not going to be easy either. Currencies will remain questionable.

– I found more supporting arguments for Rupee to get weaker…..than for Rupee to get stronger…however….

India’s Budget Deficit May Triple This Financial Year (Update2)
Feb. 5 (Bloomberg) — India’s budget deficit may triple this year from the planned target as the government steps up spending to arrest an economic slowdown, said Suresh Tendulkar, the top economic adviser to Prime Minister Manmohan Singh.

India to Sell 460 Billion Rupees of Debt by March 20 (Update2)
Feb. 10 (Bloomberg) — India’s government will sell 460 billion rupees ($9.44 billion) of additional debt in four parts between Feb. 20 and March 20, Economic Affairs Secretary Ashok Chawla said in New Delhi today.

The government has raised 2.4 trillion rupees through the sale of securities in the fiscal year that ends March 31, compared with the 1.79 trillion rupees budgeted to borrow at the start of the year, according to the central bank. The government is also scheduled to sell 80 billion rupees of debt on Feb. 13.

…however….all Asian currencies are linked to USD, they are valued mostly against USD.  Since,  USD is likely to take a big plunge this year because US government is going to print truck(s) load(s)  of money.  If it’s value falls ( probably will, due to excessive printing ) that will push value of Asian currencies upwards and that should either null Rupee depreciation or it may actually appreciate Rupee. It’s all about balance,  in case,   Indian government could not print just as many Rupee notes to offset appreciation. Printing presses on both side (India and US) are primed with ink we will have to wait and see who will print more first………

–Generally speaking not many would be interested in Indian debt..but these days are not normal days…USD is over valued on top of that US Government wants to print all new debt in the amount of Trillions of dollars that too at as low an interest rate as possible something like 2-3%.  Who would want to buy that debt under these conditions at those interest rates ? when they can buy Indian debt at 7-8-10% interest rate….it’s bigger bang for their buck….better returns…actually much better returns. It’s change of heart………..

Middle East investors eye Indian debt market for safety, returns
22 Jan 2009, 1930 hrs IST

..Interest rates in India are so attractive that even foreign banks are playing the game…

Foreign banks team up with NRIs for debt MF play
16 Dec 2008, 2047 hrs IST, Sugata Ghosh, ET Bureau
MUMBAI: A few foreign banks are tagging on to their well-heeled NRI clients to invest in Indian mutual funds. This is a transaction where an NRI
chips in with a tiny amount, borrows the rest of the money from the offshore bank and lends his/her name to invest in debt schemes managed by local fund houses. The NRI acts as a front since the bank, being a foreign body corporate, cannot invest directly in the fund.

Two large foreign banks, with a substantial presence in India, have brought in a combined $300 million in November to invest in the fixed maturity plan (FMP) offered by a domestic private sector mutual fund.

–The thing is world wide interest rates have been slashed to zero or near zero, India is one of the few countries where banks are relatively healthy and India still offers interest on safe products like CD or fixed deposit or Time Deposits up to 8-10%. This is very attractive. This is the reason why foreign banks are teaming up with NRIs to invest in India. Both articles above support debt that India is about to issue and if debt is supported Rupee valuation is supported as well. No country would like to buy debt of a country at 10% if they expect it’s currency to go lower by 10%…in that case they gain NOTHING. Their net return on investment would be zero (0).

–You see this case of Rupee appreciation, depreciation is very difficult and confusing right now…like I said if you play currency game or if currency movement impacts you..exercise caution…do study (.. a lot..) on this subject before you invest or spend……….Good Luck !!

– In India, bulk of the money that will be raised. Would be simply spent in paying down other debt, corporate debt mostly. This is the debt India has accumulated when Indian companies acquired foreign companies abroad (approx 52 Billion USD). That debt is now coming due in 2009. If Western world was not in credit crunch this question won’t even come up.

RBI counts on NRIs to help meet redemption call
28 Jan 2009, 0126 hrs IST, ET Bureau
MUMBAI: The government and corporate debt
worth $85 billion is due for repayment in 2008-09, but the Reserve Bank of India (RBI) has ruled out
any pressures on the balance of payments front.

According to RBI, while most of government and corporate debt is likely to be rolled over, a jump in non-resident deposits would take care of the rest.

Even as investors are fleeing markets and international lenders turn wary, non-residents are pumping money into bank deposits. “There has been a surge in NRI deposits in the past few months. There is a global economic crisis and Indian risk has been perceived quite positively by overseas Indians,” said Meera Sanyal, CEO, ABN Amro, India

–Over all my view on Indian currency - these days currencies are not measured against a common standard such as Gold. But they are now measured against each other in some screwed up way, currency futures, trading, swap, GDP. If GDP is higher, currency value goes up, if GDP is lower currency value goes down etc. etc. Most Asian countries still like to measure currencies against USD. Despite of the mess, USD is still considered reserve currency.

- US is all set to print TRUCK(s) load of money ( in Trillions) as everybody knows….that is going to lower USD value that view is commonly supported…if USD value goes down other currencies will appreciate. If other countries start to print their own debt at the same time it will lower their currency values again.

- It will totally depend on how fast and how much debt India will print and how it would be treated in international debt market…which at this point could be nothing more than speculation…your guess in this case is as good as mine…..how ever I think US/Europe/UK are going to print way too much debt, way more than any other country and so ultimately Rupee could ( pure speculation ) appreciate. Here is the logic as per me - If Rupee does appreciate by 10% your return could be 20%, 10% interest and 10% appreciation, if Rupee does go down by 10% you still get 10% interest rate and your total return would be 0. 10% Interest appreciation and then  10% depreciation net result 0. However this is still a better deal, because if the money is kept in USD or UK pound or in Euro…not only Interest rate is near zero, but they are all set to go lower more than 10% from their current values, what’s return in that case ? Like I said draw your own conclusion on this..GOOD LUCK !!

–Gold.

–Then it’s finally time to look at Gold…some how gold has broken all barriers and it’s appreciating in all currencies. Relation strong dollar …cheaper gold and lower dollar……strong gold….is not true anymore..as you can see today…dollar is still strong…but gold is stronger…..anyway, let us look at India and Gold. India has been a top gold consumer for years and I am not talking 1-2-or 5 years but India has been a top Gold consumer for past 20-30 years….now that’s a lot of gold India has consumed.

India remains top gold consumer
Special Correspondent
MUMBAI: India maintained its reputation of being the numero uno consumer of gold when demand for gold reached an all time quarterly record of Rs. 30,600 crore in the third quarter of 2008 (July-September), a significant 66 per cent increase over the third quarter of 2007 as investors sought a safe haven and jewellery buyers returned to the market to take advantage of softer gold prices. Demand increased to 250 tonnes in the third quarter from 190 tonnes in the same quarter in 2007, a 31 per cent increase.

…But lately gold prices went up too high too fast in 2008 that import figure dropped significantly.

India’s gold import dips by 47 pc to 402 tonnes in 2008
PTI, Wednesday, January 21, 2009 13:33 IST
Mumbai: Gold imports in India for 2008 dipped by almost 47 per cent to 402 tonnes, a top economist said.

—Then price of Gold went up to further new highs in 2009…..yesterday it touched $1000/oz. in USA. Because of that imports in India in 2009 are nill….nada….zero….so far.

India trade body says no gold imports so far in Feb Fri, Feb 13 05:05 PM
A customer points at a gold ring inside a jewellery showroom in Jaipur, Rajasthan in… Enlarge Photo A customer points at a gold ring inside a jewellery showroom in Jaipur, Rajasthan in…

Gold purchases by India, the world’s largest importer of the metal, are on course to fall for the second month in a row with no imports so far in February because of high prices, the head of a trade body said on Friday.

– Most of the gold traded in India today is re-cycled gold. If you’re planning to buy gold in India from a local jeweler think twice before you buy….you might be better off buying it from a bank…they issue a certificate and will also have to buy back as 24 carat based upon their own certificate, if not,  it would be a court case with decision straight in your favor right on day one ( I guess !!). Bank certificate should hold value….at all times.

Recycled gold in India has a problem…
Gold adulteration with iridium rampant in India
30 Jan 2009, 0050 hrs IST, Hemali Chhapia, TNN
Your wedding jewellery may not be as pure or as precious as you think it is. Goldsmiths across India have taken to adulterating the precious
metal with iridium and ruthenium, and are getting away with it, as until recently the metals failed to show up on all purity checks. It’s an alchemist’s dream, and the practice is becoming increasingly commonplace if you go by the stocks of the ‘duplicate’ metals at even the smallest of karigar workshops.

Now it’s time to explain short term gains and long term losses of reverse migration of foreign workers back to India. When workers, temporary workers specially, return they typically (mostly) sell all their asset abroad and cash in. Then, return home this will bring a lot of money ( foreign currency ) back to India, which India desperately needs today.

Once in India returning workers consume goods and services now in India (NRIs spend more money anyway..initially..till the fever fades off !!). This would give temporary boost to local economy which is very much needed not only in India but every where. So that is short term gain.

long term loss is…these people need jobs they might take jobs (due to their foreign experience or better skills or better management ) which otherwise would/could go to local people. Upon their return more people would be looking for same or even lesser number of jobs available. Some are bound to loose…they won’t have a job.

–Finally Uncle Vinny’s overall view on Indian Economy -

Based upon official numbers and figures Indian economy is about to slow down even more in 2009, Job market is going to remain soft and more job cuts will take place. Real estate will be under pressure…commercial and residential both for quite sometime. Banks will be under pressure to increase capital as people/ business default on loans and corporate debt demands rollover (it’s huge  approx 52+ billion USD ). Rupee as a currency is hung in there with no clear direction don’t know ( at least I don’t…) if it will appreciate or depreciate.

–That’s it for now but let me add this further about Indian economy, there is so much black money in Indian economy that it’s very difficult to accurately predict where the economy will ultimately go. Over the years government has made a lot of changes in tax structure and reduced black money. But there is still a lot of black money in circulation. That black money amount is almost the same (if not bigger) than all the money circulating in Indian economy which is officially accounted for.

-With gold on rise to record highs and Indians having accumulated most of world’s gold from past 30 years…are not on way to become poorer but gold prices will only make them richer (..only if they sell of course !!…and they don’t !!)

Following picture will explain better what I am trying to say in words…………shot is from a recent marriage held in Kerala while Indian Job market, real estate, economy is shrinking……picture explains the difficulty I might have saying anything positive or negative about Indian economy….with confidence.

……Way to go India !!  you are unique……you’re everything and nothing both at the same time.

….for 30 years a top gold importer and still poor when gold is at record high….your people still look for jobs abroad….go figure….!!

India, you’re great…….you’re beyond me !!

[views and opinions expressed here are mine and you need not agree with them. You should not make any financial decisions or any other decision based upon material you read on this website. For that you must contact an expert in the relevant area of your need.]

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