THERE IS NOTHING WRONG WITH THE RUPEE--VIEW
The last two months have been very stressful to say the least. The beginning of the Indian Financial year saw Gold values getting shaved off significantly, then the bad news that all is not well with the Economy. Thereafter the near negative stance from the Reserve Bank and promises after promises from the Government. Now suddenly everything seems to be crumbling. We were talking about 2050 and now we are not sure about September 2013. The Rupee became a senior citizen and then decided that the road to death had to be faster and the race between the Country's age and the Rupee's value started. The Rupee is now older than the Country's age.
What are all the indications? The aspiring student who planned for a Foreign degree in the best of institutions in USA for the fall season had not imagined that even before he started his first session, the cost of study would increase by 30% from the time he signed the offer letter and received his study visa. Now there is another whammy, the Interest rates are going up. His parents are facing the heat domestically too. The price they pay for fuel is going to increase irrespective of diesel, petrol or LPG. Their kitchen has never been so costly. There is all likelihood that one of them may lose their jobs soon. They have also pledged their home. To top it all they have sold off their gold at a lower price than what it could have been had they sold it on 28th August 2013. It is that bad...
Companies which are predominantly importing are facing another problem altogether. Even the best managed Companies cannot plan ahead of 2 months when they were planning 3 years in advance earlier. They are not sure about the purchasing power of the Domestic Indian. Most of the consumers have started putting a lid on their purses. They are sensing further deterioration. And then there is the spectre of lock outs and retrenchments which will start happening sooner than later. It is that bad...
Banks have had their liquidity completely compressed by the RBI. They have started doubting their best customers. In bad times, the best way to do business is to borrow cheap and lend cheap. However, Banks are borrowing at a higher cost and forced to lend cheap to quality customers. And when there is too much competition to fund the quality customer, they have to shave off further. The best route is to increase the rate for those customers already in the system on account of Home loans, Education loans etc., However, the risk is that these customers are already facing the heat and there is possibility of bad loans going beyond the control of the Banks. The Banks were smarter in good days, they had taken Collateral. Now, the biggest worry for them is that their smartness will now be negated. There is a strong likelihood of Collateral damage. It has already started in the Capital Markets and would not take much time to reach the Real estate market either. They have lost their confidence on Bullion. They cannot take any further risk on commodities. High gearing is something they have to contend with. Unfortunately with the increased interest rates, their customer's leverage is just one issue, the basic serviceability has crumbled. It is that bad...
The Country's finances is likely to be in severe stress. Or is it already? The Finance minister said that we have minimum 7 months of funds available to support Imports. It was so about 20 days back. At that time the Rupee was 62 and within the span of 3 weeks it has tanked another 10%. That means the support has receded further. It can be argued that exports are now paying better by 10%. Unfortunately, the position is not that rosy. There is a global turmoil and those countries which are traditionally importing from India are also facing equally tougher situations and their currencies are deteriorating faster. It means that our exports also could be equally bad. It is that bad...
I don't think there is anything wrong with the Rupee...It is just that it is BAD...
What are all the indications? The aspiring student who planned for a Foreign degree in the best of institutions in USA for the fall season had not imagined that even before he started his first session, the cost of study would increase by 30% from the time he signed the offer letter and received his study visa. Now there is another whammy, the Interest rates are going up. His parents are facing the heat domestically too. The price they pay for fuel is going to increase irrespective of diesel, petrol or LPG. Their kitchen has never been so costly. There is all likelihood that one of them may lose their jobs soon. They have also pledged their home. To top it all they have sold off their gold at a lower price than what it could have been had they sold it on 28th August 2013. It is that bad...
Companies which are predominantly importing are facing another problem altogether. Even the best managed Companies cannot plan ahead of 2 months when they were planning 3 years in advance earlier. They are not sure about the purchasing power of the Domestic Indian. Most of the consumers have started putting a lid on their purses. They are sensing further deterioration. And then there is the spectre of lock outs and retrenchments which will start happening sooner than later. It is that bad...
Banks have had their liquidity completely compressed by the RBI. They have started doubting their best customers. In bad times, the best way to do business is to borrow cheap and lend cheap. However, Banks are borrowing at a higher cost and forced to lend cheap to quality customers. And when there is too much competition to fund the quality customer, they have to shave off further. The best route is to increase the rate for those customers already in the system on account of Home loans, Education loans etc., However, the risk is that these customers are already facing the heat and there is possibility of bad loans going beyond the control of the Banks. The Banks were smarter in good days, they had taken Collateral. Now, the biggest worry for them is that their smartness will now be negated. There is a strong likelihood of Collateral damage. It has already started in the Capital Markets and would not take much time to reach the Real estate market either. They have lost their confidence on Bullion. They cannot take any further risk on commodities. High gearing is something they have to contend with. Unfortunately with the increased interest rates, their customer's leverage is just one issue, the basic serviceability has crumbled. It is that bad...
The Country's finances is likely to be in severe stress. Or is it already? The Finance minister said that we have minimum 7 months of funds available to support Imports. It was so about 20 days back. At that time the Rupee was 62 and within the span of 3 weeks it has tanked another 10%. That means the support has receded further. It can be argued that exports are now paying better by 10%. Unfortunately, the position is not that rosy. There is a global turmoil and those countries which are traditionally importing from India are also facing equally tougher situations and their currencies are deteriorating faster. It means that our exports also could be equally bad. It is that bad...
I don't think there is anything wrong with the Rupee...It is just that it is BAD...
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