Indian Currency and Markets Suffer Major Loss of Confidence


Senator (1k+ posts)

Plummeting Indian rupee is the most obvious symptom of the world losing confidence in India. The crisis of confidence is so great that Jim O'Neill, former Goldman Sachs executive whose BRIC acronym made India an attractive investor destination in 2001, has recently said that
if I were to change it, I would just leave the "C"" in BRIC.

India has long run huge twin deficits which it has been able to finance with foreign capital inflows. Such flows have been driven mainly by the easy money policies pursued by the US Federal Reserve and other central banks in Europe and Japan in recent years.

The US Fed in Washington has been buying $85 billion worth of bonds with a few computer key strokes every month to stimulate the US economy.

Many investors had been borrowing money in US dollars at extremely low rates to invest their borrowings for higher returns in emerging markets like India. With US economic recovery beginning to take hold, the US Fed has signaled that it may reduce or end these bond purchases. As a result of this change, foreign investors are retrenching from the emerging markets to take advantage of better returns in US and frontier markets.

In contrast to big declines in emerging markets like India and Indonesia, some frontier markets such as the UAE, Bulgaria and Pakistan have returned over 50 percent this year in dollar terms, according to Reuters. Unlike in the big emerging economies, listed companies in Kenya or Pakistan tend to be true plays on the emerging market consumer. Earnings growth estimates for this year have risen sharply almost everywhere to 10-15 percent (versus the 9.8 percent average in emerging markets)

In addition to the stellar performance of Karachi's KSE-100 this year, Pakistani euro bonds listed on the Luxembourg stock exchange are also doing well, according to Pakistan's Dawn newspaper. In the last four months, these bonds have surged by more than 10 per cent (excluding coupon payment), which places them among the best performing in emerging and frontier markets. During this period, yields on the bonds have declined by more than 300 basis points.

India and Indonesia have been specially hard hit because both are dependent on significant foreign inflows to fill their current-account gaps. Foreign investors have already sold a net $11.6 billion of Indian debt and equities since late May, sparking fears of continued weakness, according to Reuters. As a result, Indian rupee and major Indian stock indices have both suffered double digit losses this year. Weakness in the Indian currency, which tumbled almost 15 percent this year, could further fuel inflation, and hurt consumers in an election year. Compared to 2011-12, the Indian GDP has declined by more than $200 billion to about $1.65 trillion this year.

The Reserve Bank of India (RBI), the country's central bank, has said it plans to buy long-dated government debt to stabilize markets after rising volatility threatened to hurt an economy that is already growing at the slowest pace in a decade. But the BRI actions appear to be too little too late.

There does not appear to be any quick fix to the falling rupee and declining investor confidence. The longer term solution lies in containing both the budget and the trade deficits. It will require strong political will to cut spending and reduce imports in the immediate future. Such actions will make the situation worse before it hets better. Will India's ruling politicians muster the courage to swallow the bitter pill so close to the upcoming elections in 2014? I doubt it.
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khan afghan1

Minister (2k+ posts)
Sorry to say but keep in mind that these white developed countrries will never
let their own currencies devalued against any other currency of the world.Indian rupee
devaluation does not mean that India is on the economic downfall.Any country which
export will keep their currency at a lower rate to attract importers from other countries
to trade with India.If u look at chinese and Japanese currencies they much lower than Indian dont be in any doubt that India is loosing.India has now merger and acquisition
with many multi national companies around the world,whether we like it or not but Indians
are very good in business dealing.
There is fundamental weakness In Indian economy

1. Exports 《《imports

2. Balance of payments turn . positive only bcoz of foreign investors

3. Country has to pay170billion $ debt with in a year.

With the corrupt govt who just believes in vote bank,
The new food and other subsidy ll provide oil to the fire.

There is 25% chance Indian economy ll get a rating downgrade by


Senator (1k+ posts)
Here's Jayanti Ghosh's Op Ed in the Guardian:

So now India is the latest casualty among emerging economies. Over the past 10 days, the rupee has slid to its lowest-ever rate, and the Indian economy may well be on the verge of a full-blown currency crisis. In this febrile situation, it is open season for rumours and pessimistic predictions, which then become self-fulfilling.

This means that even if there is a slight market rally, investors quickly work themselves into even more gloom. Each hurriedly announced policy measure (raising duties on gold imports, some controls on capital outflows, liberalising rules for capital inflows and so on) has had the opposite of the desired effect. Everything the government does seems to be too little, too late – or even counterproductive.

These are all classic features of the panic phase of a financial market cycle. This doesn't mean that a crash is inevitable, but clearly it is possible. The real surprise in all this is that investors and Indian policymakers are surprised. For some reason, they apparently did not foresee this turn of events, even though the story of every financial crisis of the past, and many in the very recent past, should have caused some nostrils to twitch at least a year or two ago.

The Indian economy has been in trouble for quite a while already, and only wilful blindness could have led to ignorance on this. Output growth has been decelerating for several years, and private investment has fallen for 10 consecutive quarters. Industrial production has declined over the past year. But consumer price inflation is still in double digits, providing all the essential elements of stagflation (rising prices with slowing income growth).

At the moment the external sector is the weakest link. Exports are limping along but imports have ballooned (including all kinds of non-essential imports like gold), so both trade and current account deficits are at historically high levels. They are largely financed by volatile short-term capital. This has already started leaving the country: since June more than $12bn has been withdrawn by portfolio investors alone.

This situation is the result of internal and external imbalances that have been building up for years. The Indian economic boom was based on a debt-driven consumption and investment spree that mainly relied on short-term capital inflows. This generated asset booms in areas such as construction and real estate, rather than in traded goods. And it created a sense of financial euphoria that led to massive over-extension of credit to both companies and households, to compound the problem.

Sadly, this boom was also "wasted" in that it did not lead to significant improvements in the lives of the majority, as public expenditure on basic infrastructure, as well as nutrition, health, sanitation and education did not rise adequately.

We should know by now that such a debt-driven bubble is an unsustainable process that must end in tears, but those who pointed this out were derided as killjoys with no understanding of India's potential. Something similar is occurring in a number of other Asian economies that are also feeling the pain at present, such as Indonesia – while the Brazilian economy shows some similar features. The current Indian problems may be extreme, but they reflect what should now be a familiar process in all major regions of the world.....
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