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The Sinking Rupee Through Foreign Eyes

August 26, 2013 Leave a comment

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Here’s the Financial Times on the depreciating Rupee:

“the rupee has lost 57 percent of its value against the US currency since it peaked at 39.40 rupees to the dollar in February 2008”.

So basically foreign investors have lost over half the value of their original investment in India in dollar terms in the previous 5 years.Or 15% per year.How many of their investments returned over 15% per year?Was the overall return so much better than the 1-2% returns in their own countries?Does it explain why Indian financial assets don’t seem so interesting to foreigners and NRIs?

Small wonder that the only Indian assets that Dollar owners want is real estate,So boys and gals get ready for another round of irreversible increase in the price of land and real estate.Even today,the average family can own an average Mumbai flat only by saving 10 lacs a year for 30 yrs and that’s not considering interest .Pray how many Indians have incomes that can allow such savings over a life-time?Get ready to be priced out of the market and become a life-long renter.

Filed under Alternative Assets, Tidbits Tagged with depreciating rupee, falling rupee, FII investment in real estate, FII investments, NRI investment in real estate, NRI Investments, postaday, real estate investment

The Story Of The Falling Rupee

August 22, 2013 3 Comments

wealthymatters Even after independence in 1947,the Indian Rupee was still pegged to the British Pound. The peg to the Pound was at INR 13.33 to a Pound which itself was pegged to USD 4.03. That means, officially speaking the USD to INR rate would be closer to Rs 4. In 1966,the Rupee was devalued and was now directly pegged to the US dollar at INR 7.50 per Dollar. Till 1966, the Indian currency, which was pegged to the British pound, was an officially or unofficially acceptable tender over a large part of Asia and Africa, from Beirut to Hong Kong.After the devaluation, the Rupee suddenly turned a global pariah, with few takers anywhere.Exports did not surge as expected and Indian financial prestige suffered even further.

By 1985, India had started having balance of payments problems. The rupee had by then been depreciated to about 17/$ in the intervening 2 decades,By the end of 1990, the country was facing a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had reduced to such a point that India could barely finance three weeks’ worth of imports. India had to airlift its gold reserves to pledge it with International Monetary Fund (IMF) for a loan.In 1991,overnight the Rupee was devalued by another 50% from about 17/$ to about 25/$. In 1993,the government allowed the Rupee to be traded by traders without a forced peg and it started to slide as the government was no longer controlling the prices, fully and started to reflect the reality. From about 27/$ it slid to Rs.35/$ by 1997. Read more of this post

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The Indian Rupee And The General Elections

August 21, 2013 2 Comments

wealthymatters History shows that after liberalization,the Rupee falls ahead of the general elections.For example,in 1996, the rupee depreciated by nearly 10% in the 12 months leading up to the elections. And in 2009, it fell by 18% in the run-up to the polls.

Economist’s explain this phenomenon by pointing out to the governments’ tendency to overspend to satisfy various vote banks as elections approach. This unproductive expenditure causes the Rupee to depreciate, which then forces the government to intervene and try to prop up the currency.

Lay people have a more interesting take on the matter:the money of the political class stashed abroad is brought back to fund elections. A weak rupee means politicians and others bringing back the money are able to get a greater bang for their buck, and it is in their interest that the Rupee remains weak during this period. Read more of this post

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20% Fall History

July 23, 2013 Leave a comment

wealthymatters In 2008, when Lehman Brothers imploded on September 15, the Rupee, which had by then slipped a bit from its sub-39 all-time high to around 41, fell sharply and by the time the music really stopped, about 3 or 4 months in, to over 50 to the dollar, a decline of 20%.

In August 2011, when the US debt downgrade followed by the exploding of the European sovereign debt crisis (courtesy Greece) hit emerging markets like a bomb,the Rupee, which had been hovering between 44 and 46 for several months – during which, incidentally, both exports and imports were growing like gangbusters – collapsed in a near-straight line, triggering RBI action on December 15, tightening rules and squeezing liquidity. When the dust had cleared – or so it seemed – the rupee had lost over 20% and there was blood all over corporate balance sheets (and, of course, profit and loss statements). The banking system is still recovering from this.

This time round,the fall so far is just half of that in the previous two cases.

Filed under Alternative Assets, Paper Assets, Tool Kit Tagged with balance sheet, European sovereign debt crisis, fall in rupee, falling rupee, Lehman Brothers, postaday, profit and loss statement, rupee depreciation, US debt downgrade

Guesstimates Of The Value Of The Rupee

July 23, 2013 1 Comment

If you are looking for some guidance on where the Rupee/Dollar exchange rate is likely to stabilize,here are the best guesstimates from various financial institutions:

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