Allow Rupee to Rise
Article Ref: 10-006 of 1st August, 2010 Full Article from Box. net – PDF file
Full Article from ScribD – PDF File
India is a giant country that has seen the “Best to Worst days cycle” in last 2000 years. India used to be the largest GDP growth grosser in first 12 centuries. Here is what Mr. Maddison wrote:
According to economic historian Angus Maddison in his book The World Economy: A Millennial Perspective, India had the world’s largest economy from the first to eleventh century, and in the eighteenth century, with a (32.9%) share of world GDP in the first century to (28.9%) in 1000 AD, and in 1700 AD with (24.4%).[8]
Most people, including Indian themselves, try to analyze the country under telescope and microscope but fail miserably. They finally give up in despair with ITDC picking up their breath with campaign – Incredible India. Nothing hurts or glees the Indians except some false prides at times, and India walks through the global economic forest like an elephant unmindful of admirers or foes. The Indians worship “Lord Ganesh” the Elephant God in full symbolization of the true nature of the giant country.
Rated as the poorest country only 60 years ago, the India has rediscovered itself in last 7 years. Contrary to populist belief that foreigners robbed India of its true wealth, it is the Indians who frittered away its glorious wealth to the foreigners. Indians are known to punish themselves – they do fasting or eat one time for 3 out of 7 days in a week, roll themselves on roads to worship the deities, lash themselves with cords, in manifestation of religious belief to purify their souls.
India’s Central Bank – Reserve Bank of India, Prime Minister Manmohan Singh, Finance Ministers Pranab Mukherji and erstwhile P Chidambaram, have robbed India of its real wealth by constantly devaluing its currency – Indian Rupee – for over 60 years. Ask yourself and after getting an answer, ask these glorified leaders, why the hell the Indian Rupee should have been devalued by 90% over last 63 years when its population rose three fold, industrial production rose ten fold, agricultural production rose twenty times in green revolution, its human exports in the form of educated immigrants rose thirty times to western and gulf countries, its brainy exports (software) rose almost 100 times and its GDP rose to the fastest rate over last few years?
These leaders, some renowned economists, were “classic book type” bureaucrats who applied their intelligence when common sense was required. As result, Indian goods were sold out abroad damn cheap and made the imports of essential commodities expensive to almost entire Indian society.
Look at the following table:
- The table illustrates the figures since 1973.
- In 1950, the exchange rate was Rs. 4.7619 against Rs 47.61 today – 900% devaluation
- In other words, the Indian commodities were sold out almost free of cost.
- Vital commodities like Oil and coal were priced almost 100% higher raising petrol, diesel, fertilizer, transportation, electricity, cooking gas, kerosene and ATF for airlines.
How India imports inflation by devaluing Indian Rupee?
1. Most of the commodity prices are denominated in US Dollar. After years of paper trading through derivatives to lower the commodity prices, the financial crisis brought them to halt, and in fact they have started surging. The continued devaluation or proactive suppression of appreciation of rupee by RBI intervention, what they call “sterilization operation”, the higher commodity prices in the international market translate into higher prices in Indian rupee due to deliberate devaluation. This forces the local producers of those commodities to raise the prices, resulting into inflation.
a. EXAMPLE 1: if steel or metal prices rise in international market in USD terms, the effect is more than felt in rupee terms due to weaker rupee. As result, the local producers raise the prices. The real estate prices also rise due to higher input of these commodities such as steel, cement, copper and aluminum.
b. SEBI’s Role in enhancing inflation: SEBI introduced the futures and options in commodities at most inopportune time. Most of the commodity contracts are “non delivery based” and “cash settled” in rupee terms (what they call “badla”). For instance, a contract of commodity A (say, steel, sugar, corn or soyabean) is cash settled without any delivery. So a speculator is encouraged to “paper trade’ and bid up the prices on the MCX with the hope to settling the trade on “difference’ basis on settlement date. Due to higher paper prices of such commodities, the physical market too gets higher that results in higher inflation. These commodities are of daily necessities and form large part of inflation index.
c. RBI’s role in propping up inflation: RBI too promotes inflation by deliberately devaluing the rupee or restraining its natural rise. When the foreign funds bring in the dollars and try to buy in advance Rupee from the free market, the RBI restrains them and give them better “off market rates” to avoid their buying rupee from local markets. As result, the Rupee that should have gone higher due to foreign funds inflow, turns lower or remains stable at the most. RBI’s so called “sterilization measure” interfering in free market mechanism restrains the Rupee appreciation that causes inflation by letting dollar denominated commodity prices translate into higher prices in rupee terms, encouraging speculators to engage into non deliverable commodity contracts with passive participation of SEBI, that causes the local markets to boost those commodity prices, resulting in double digit inflation.
2. Oil Prices - major inflationary factor encouraged by RBI: Large part of the India’s import is due to higher oil prices. When the oil prices rose by 100% in $ terms, and Euro also rose by 90% (from 0.84 to 1.60 sometime back), the effective rise in oil prices in euro terms in euro zone was significantly subdued resulting in lower inflation and also lower interest rates.
a. However in India, due to RBI’s reckless policy of intervention in the name of sterilization, caused Rupee to fall from Rs 39 (during BJP time) to Rs 48 at present (devalued by RBI under Congress government by 23%). The rise in oil prices were inflated more by 23% in rupee terms, necessitating in higher Petroleum subsidy running into Rs 200,000 crores in last 4 years.
i. The government is then caught in dilemma. Either it has to cut the subsidy at the cost of public outrage which may cause election loss or raise the taxes to balance the budget avoiding deficits.
ii. The recent cut in oil subsidy by letting the market forces determine the petrol and diesel prices, the mere rise of just 6% in oil prices caused the inflation to run into double digits forcing the RBI to raise the interest 3 to 4 times recently by almost 1% point. It raises the cost structure in entire economy, reduces the housing demand due to higher mortgage financing rates, reduces the Auto demand due to higher car financing rates, lowers the disposable income in the hands of consumers forcing GDP down and in general lowers the economic activity in every segment that would lead India towards “forced recession”.
iii. Only due to RBI’s misconceived policy of devaluing rupee by pro-active sterlization actions tempering the free markets when the country is forced under WTO to reduce the taxes and open up the markets at the cost of domestic producers.
iv. No one hates Indian Rupee more than RBI, Ministry of Finance and Indians themselves. Rupee is the face of the nation. It is the most visible child of the nation. We have to love our child and take full care of it. Look at United States. In spite of its enormous economic problems, it always seeks “Stronger dollar” even when the fundamentals do not warrant. Why do we Indians, the Micky mouse imitators of American way of life in all aspects, do not follow this basic rule to support our own currency? Why do we hate our own child?
v. All Indians should Ask themselves; do we want our children to become weaker or do we want them to become strong, self supporting and earning more in adult life to help entire family including parents?
vi. If that was so, why do we Indians go on depreciating our only child – Indian Rupee – for over 60 years? When our child turns into adult after about 21 years, we let him roam around free and start earning. If he does not earn and support the family, he is ignored or abandoned. In that case, why do we have to “support” the rupee even after 60 years, when leaving it alone could usher in new economic age in India?
vii. The “Reservation policy” aimed at supporting Scheduled Tribes and Scheduled Cast is almost similar. Why do not they grow up after 63 years of independence and support themselves after first 21 years of support? The merits take backseat, unwanted people man the government departments, and the corruption pervades like a fire in the dense forest.
b. The refineries lost money due to their portion of subsidy, common man lost in higher kerosene or gas prices, airlines lost because of higher cost of ATF, land transportation such as Railway and Road Transport cost higher, and cost of electricity rose due to higher inputs of basic raw material such as Oil, diesel or coal. Energy bill (Electricity + Gas + Petrol/diesel for home driven auto) constitute almost 25% of household budget. As result whole cost structure in the country rose to unsustainable level, raising inflation to almost double digits, requiring higher interest rates or tightening of cash reserve ratio (temporary measure to restrain real rate rise).
c. Had the government and RBI allowed the rupee to rise, instead of weakening, everything would have worked in reverse direction, causing the subsidy burden to fall and inflation coming under severe check. It would have justified lower interest costs. It would have also helped the government to save on interest expenses on public borrowing. The budget could have been balanced or significantly improved resulting into “higher investment rating” of India in international market by improving the benchmark interest rates.
d. India never saw lower oil prices in the market. The continuous weaker rupee worked at cross purposes. India never saw petrol or diesel price below Rs 9 per liter even when the oil prices fell to $9 per barrel.
e. The main enemy was RBI and its consistent policy to weaken the rupee at all time. Reserve Bank of India is the most inefficient monetary institution in India. Almost all of its actions suck and they invariably give “wrong advice” to the Government of India hurting the whole nation. The surprise is – almost all ordinary Indians, intelligentsia, critics, analysts and economists admire the inefficient officials sitting behind the fortress on the Horniman Circle in Mumbai without realizing that these guys or babus are hell bent on hurting the Indian economy. RBI is the single most institution to makes the India poor and fritter away its glorious wealth. Either it should have thorough overhaul or disbanded altogether.
f. The RBI officials simply do not have international exposure in monetary affairs. RBI vented out its frustration at one time lamenting rise in Forex reserve because it was unable to manage it. If China could manage over US$ 2 trillions of Forex Reserve, why not RBI manage just 15% of it – about US$ 300 billions? If these guys can not manage the Forex reserve of modest size, they forfeit their rights to manage India’s economy.
g. FOREX reserve is more like balance in nation’s savings account. Do we want to see our savings account balance to go lower? Certainly not, then why does RBI want to reduce Forex reserve by discouraging foreign funds inflow?
h. RBI does everything to lower the rupee. Every action sucks and run in that direction. It lowers the interest rates on NRI deposits, 50% lower than domestic deposits, so that NRI do not buy rupee and help it maintain its weaker rupee stance. Why? During Forex crisis in 1992, it was NRI who lent billions of dollars free of security. Even Britain asked for gold as collateral, NRI did not. NRIs are therefore treated like a disposable towels.
3. Asian Crisis, Rupee and Thai Baht exchange rates – Comparison
a. Before Asian crisis, the Rupee was at 36/$ level and Thai bahts at 25 /$ level to USD. After the Asian crisis erupted, the Rupee sank to Rs 48 and Thai Baht fell to 56 level on 1Jan98. However, as of today, the Thai Baht has improved to THB 32/$ whereas Indian Rupee has remained at same level of Rs 48/$. Now, ask yourself – which is the better and stronger economy – Thailand or India? Where is the maximum money flow – Thailand or India? Which has the most vibrant stock market – Thailand or India? Which country has higher GDP growth – Thailand or India? If that was so, why Thai Baht should appreciate by 42% and Indian Rupee should weaken by 2%?
b. It is absolutely clear that these three musketeers – RBI, SEBI and MOF (Ministry of Finance) have consistently worked against the broader interest of India and entire Indian population by devaluing the rupee at all the time.
4. India’s Debt Level, Debt Servicing and Effect of Indian Rupee exchange rates:
a. The rupee should have been at Rs 26/$ level against Rs 48/$now. That is, appreciation by at least 50% in normal course.
b. India’s debt at about US$ 120 Billions translate into Rs 576,000 crores. Had Rupee seen the rise by 50%, same debt would have been at Rs 312,000 crores or about Rs 254,000 crores less than what it is now. The interest borrowing cost of the government in that case could come down saving almost Rs 25,000 crores annually.
c. India could have used part of its foreign exchange reserve to retire at least 50 Billions of external debt in phased manner.
d. To earn $ 50 billions from exports, need increase in Export Revenues by $ 500 billions (presuming 10% profit margin and presuming that not a single dollar goes bad which is impossible). $ 500 Billions rise in exports? Does India have any major industry that could turn in superlative export turnover of $ 500 Billions? Even if it has, who is going to buy in international market which is in severe recession?
e. By letting the Rupee to rise, the national debt level could be reduced significantly that would raise the rating of the government of India, and also the entire corporate sector.
f. The stock markets could also rise by at least 35% at least, which can be used by the Government to sell its stake in many of government owned companies to realize the cash from the market instead of levying taxes on its citizens. In fact, government could afford to reduce the taxes of individuals and corporate sector simultaneously. That would propel the markets even higher.
g. Lower interest rates, higher rupee, lower import costs of major inputs such as oil and coal, lower commodity prices in rupee terms due to higher rupee reducing the inflation and higher rupee savings in the hands of individuals and corporate would raise the GDP to unbelievable double digit level surpassing even China, and also making huge amount available for key infra structure projects. It will be a “Win-Win” situation for all in India – Individuals, Corporate and Government itself.
5. Will EXPORTS be affected?
a. To some extent, some hard goods manufacturers might be affected but will be balanced out in 6 months or so. Those who want to buy Indian goods, they are going to buy it, whatever be the price, Are not people buying Real Estates today at whatever price even after 50% rise in property prices? Stark necessities dictate demand, not the weak or strong currency.
b. Major export industry is “Software” which is mainly a service industry. The outsourcing is not going to stop. If rupee starts rising, those on the sideline may have to jump in and sign the outsourcing contracts before it is too late. Did India’s software sector lose competitive edge during BJP rule when the Rupee rose to almost 39/$ level, a rise of 20%? Absolutely not. And those companies who want to out source, they are going to use India because it is the only English speaking country with indispensable talents.
c. Higher rupee could also cause migration of student overseas due to cheaper education by 25% to 50%. There will be less demand at home that would cause corruption cost to ease. The donations will no longer be necessary because overseas window has opened. The people will compare – is it cheaper to study abroad due to firmer rupee or at home with higher cost of corruption? Even government would not mind higher exchange allocation to soften the pressure on rupee.
6. Foreign Investment to rise..
a. There will be increased money flow from overseas. The overseas investors will not only gain from the rise in equity prices, but will also gain in exchange, making return in their home currency almost double. They would buy more equities or increase FDI (Foreign Direct Investment) that would help massive power, road, ports and infrastructure companies.
7. Government of India to benefit most..
a. Government of India will be the biggest winner in Rupee Rise game. Following are the advantages for the government:
i. Its oil bill will come down significantly. Higher rupee may also act as “antidote” against higher oil price in $ terms in international markets.
ii. Oil subsidy level will come down significantly, much faster than the present policy envisages.
iii. India’s refineries will welcome the lower rupee. Its purchase cost would be trimmed with the result its working capital requirement going lower. The margins will widen that would generate positive cash flow for further investment.
iv. Nation’s oil explorers like ONGC, GAIL, PETRONET and Reliance/Essar Group can make more strategic acquisitions overseas with stronger rupee. Their cost of acquisition would come down by almost 50% resulting into higher inflow of feed stocks at cheaper prices. Such benefits could also usher in the era of falling oil prices in India for next 10 years to the glee of Indian consumers, India based Airlines and Auto manufacturers who would see higher demand for their vehicles.
v. Indian debt level may reduce in rupee terms. Its external debt servicing cost may come down by over 30% at least.
vi. The budget will turn into black with this master stroke of changing the Rupee policy. The government can now think of reducing taxes, rather than increasing them, getting it desired votes from all consumers.
vii. There would be no need to follow the policy of appeasement to Scheduled Tribes, Scheduled Casts and Backward Tribes by following reservation policy any longer. If they do not vote, other higher ups will vote. Further, the government will have more disposable funds to help those backward communities with real fund based help, rather than displeasing the vast urban community with unfair reservation policy. The merits will begin to take hold of every corner in Indian society.
viii. Government of India will become one of the richest government in the world. It holds and controls more than 200 state owned enterprises many of them are listed entities. The doubling of stock market from present level influenced by lower interest rates, higher GDP growth and lower taxes would almost treble the market cap of its controlled enterprises. It can now afford to dilute its stake and privatize them at much higher prices than now. The budget surplus will simply grow beyond wildest imagination.
ix. Roads, Railroads, Ports, Water damns and Power plants will now be built at much lower cost than ever before. The real prosperity will travel from the coastal areas to hinterland the way the Chinese economy has prospered from outside to inside core.
x. India can then afford to have free float of Indian Rupee to make it as most indispensable currency in the world. It could be used as “world’s safest currency” due to enough backing of gold in India. It is English speaking country after all with open democracy. All benefits of open democracy will now be felt with more consciousness than ever before. RBI will have more role in managing monetary policy than inventing economic policy which is the core function of the government or law makers.
It is time to tell RBI – better take a back seat, You have done enough damage to the economy. Now, go behind and reflect on what you did that should not have been done, and what you did not do, should have been done.
Let India put at rest its disastrous policy on Indian Rupee for good. Let new symbol start its journey with the position of strength. Sorry, RBI – this article may not be to your taste, but then, someone has to bell the cat. Kalidas is honored to do that job.
Anil Selarka (Kalidas)
Hong Kong, 1st August, 2010
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Number | 10-006 | Date | 1Aug2010 | Author | Anil Selarka | Screen Name | Kalidas |
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ALLOW RUPEE TO RISE | Copyrights | © 2010 Anil Selarka (Kalidas) | |||||
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Rupee, India, GDP, Devaluation, Intervention, Strong Rupee, deficits, subsidy, RBI, SEBI, MCX | |||||||
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Hello Anil Uncle,
Global; Currencies & Gold; Indian Rupee and Gold Standard in general
Wonderful article – you have covered many angles – I often wondered the decline of the rupee/usd – much has been explained in this article. You are right – 26/$ makes more sense than 48/$.
However, as you mentioned in #7 – I don’t see the world going back to gold-standard – in this post Bretton woods accord (1944) & Smithsonian Agreement (1907′s) world – since governments can choose to peg or semi-peg their currencies – they’ll most probably peg to a currency than to Gold-standard.
Imagine if world were to go back to Gold-standard (which simply allows those who hold the gold to be more powerful – even if the GDP of that nation is not worth mentioning) – dictators & tyrants like Gadhafi (libya) will rule the world once again – as having Gold is all that matters – not how you acquired it – which puts us back into pre-industrial revolution era – and possibly bring out the worst in us.
I believe wealth should always be measured by the collective effort of the society to improve living standards of people – than just acquiring & storing resources – in the name of the vanity & power – my 2 cents.
Otherwise, love the article – well-researched & well-put. I hope someone in Indian Gov’t up the chain – will read & take action.
Regards,
Martin
San Diego, USA
Kalidas Says … Friday, March 04, 2011
The countries do not go back to gold standard voluntarily – they are forced to due to excesses committed by them in their financial system by mismanaging their paper currencies. There may not be return to absolute gold standard, that is, on 1:1 basis, but there may be some semblance of using gold while printing more and more currencies. Switzerland has some regulations in place which makes its currency more acceptable to high net worth investors.
There may be some ratio of gold to printed currency. It is possible that there may be even reverse split of currency, that is, say 20:1 or Old US$ 20 to new US$1, same way the stocks are forward or reverse split. When too many shares are in the market place, they arrange for reverse split, for eg General Motors very recently and Citigroup in future. No one will buy Citibank shares at $4.85 because it is categorized as penny stocks but when it is reverse split 10:1 then it will attain some credibility. Trillions of dollars have been printed so far, it makes sense that there will be reverse split that may reduce the available supply and increase the demand.
When the number of people are increasing (they have risen from 2 Billion to 6 billion now in last 60 years), money supply also has to increase which can happen only in paper currency because the supply of gold is very limited. Gold price increase due to greater number of currency paper versus gold quantitative supply.
The world will not go back to gold standard, for sure, but there would be greater emphasis on gold holding by central bank with reference to budget deficits. It may take years to agree upon, not less than 4 years.
There is no clear measure of wealth. Even GDP is not true measure. For instance, the consumer spending is one of the most important measure. US consumers do not have job, so can not have money to spend. Bernanke printed over $1.8 trillions and gave it away as “Unemployment Allowance”. This money was created out of budget deficits or deficit financing. Now, the unemployed person uses this money and goes to Walmart and spends it. It is reflected as GDP growth which in fact it is not.
Martin Das
5 Mar 11 at 6:40 AM
Respected Sir
Before this mode of communication comes to end, please answer my two questions.
1, What should be the right asset allocation for next 1-2 year for Commodity, Debt (Long term/ short term Gilt) and Equity?
2, When to start accumulating more OMC stock keeping in mind today news of sharing loss by GOVT and OMC and postponing of FPO for IOC. Isn’t it better till that time to invest in refinery stocks?
We wish you and your family a very happy new year. And pray to GOD that you with family will have lots of love, good health and abandon happiness in coming year.
Our target remains same, regardless of present development. Wait until 3rd week of this month when the IOC 3QDec2010 will be out. See how did they fare in second quarter after price hike in petrol at least.
With Regards
Renu Khanna
New Delhi, India
Kalidas Says…….Thursday, December 30, 2010
Wait for my new article which is under preparation for asset allocation.
Present negative news relating subsidy and diesel pricing is hurting the stocks of OMC. This kind of bickering was expected.
Pranab Mukherji has no options. According to ET reports, he has vented out his frustration that nearly 50% of Corporate Income Taxes have not been paid which run into Rs 120,000 crores. So, when he does not have money from taxes, no money from diesel price hike, no money to provide the oil subsidy to the OMC, what the hell will he do? He is on Checkmate now. He has no options left, so do not worry.
Renu Khanna
30 Dec 10 at 6:35 PM
Sir,
What are the safe stocks which can appreciate along with Rupee appreciation ?
Thanks
Prabakar
Kalidas Says…….Wednesday, December 29, 2010
Refinery stocks because their cost of input will go down, increasing their profit margin.
Bobby
30 Dec 10 at 8:48 AM
Sir,
A basic question on your comment on RBI’s role in propping up inflation.
How is it possible for RBI to “always” defeat the free market principles of supply vs demand ? Does RBI have unlimited Rs to keep on giving “off market rates” every time the foreign funds brings in dollors ?
Thanks
Bobby, Singapore
Kalidas Says…….Wednesday, December 29, 2010
All Central Banks can print money if needed. RBI always get GOI approval for its actions. So they just print their way out, just the way FED doing it. RBI always imitate FED in United States. Look at latest actions – FED in the name of QE2 has intentioned to buy $600 billions of Treasury Bonds, that is, printing more money to be given to the holders of those bonds, mainly the funds.
RBI recently decided to buy back Treasuries amounting to Rs 48,000 crores to ease the liquidity crunch, instead of reducing interest rate straightaway. FED did not have luxury to cut the interest rates because they are already near Zero whereas RBI had all the time in the world to reduce the interest rates which are close to 8% for deposits.
Bobby
30 Dec 10 at 8:12 AM
Dear Sir,
Thxs for the reply.
Please advice why CAIRN INDIA CMP 330 is not moving .
Is it due to Govt Decision pending on the issue .
Regds
Sameer
Pune
Kalidas Says…….Wednesday, December 29, 2010
Yes. Wait until then. Not much risk in owning this stock at this level.
Sameer Apte
29 Dec 10 at 2:30 PM
Dear Sir,
As per advice i asked my broker to buy Confidence Petroleum.
He says the share is delisted and is not available .
Please advice if this is correct .
regds
Sameer
Pune
Kalidas Says…….Friday, December 24, 2010
Here is the Moneycontrol Quote link. Show him the BSE and NSE code as mentioned on the top.
Sameer Apte
24 Dec 10 at 6:45 PM
Dear Sir,
Thxs , I can keep ITC for 2 year .By what percentage do you expect ITC to increase. Ispat and Confidence Petroleum will buy at the existing level who are at 24 and 19 Rs respectively.
What would be your 6 mths target for these 2 shares.
Regds
Sameer
Pune
Kalidas says…Wednesday, December 22, 2010
ITC will perform in bad market because it will be treated as defensive share. It will give about 30% return from current level in 2 years which may not sound much. Better swap into IDBI Bank or Ispat for the time being for better utilization of resources. Otherwise, stay put with ITC
There are no 6 months target for the shares mentioned by me. They will give you 40% return in 12 months time.
Sameer Apte
23 Dec 10 at 2:13 PM
Dear Sir,
I have ITC LTD 100 shares for 170Rs. ITC share is around same price for long time . Shud i swap to Confidence Petroleum which is at INR 19 today .
regds
Sameer
Pune
Kalidas says…Wednesday, December 22, 2010
ITC is a defensive high quality share. However, it is meant for very serious investors. For smaller investors, one can swap to the following stocks:
1. Confidence Petroleum
2. Ispat Industries
3. IDBI Bank
4. UCO Bank
using same proceeds or adding a bit more to make a round sum figure for the shares. Ispat is preferred in short term due to its being taken over by JSW Steel
Sameer Apte
22 Dec 10 at 11:05 PM
Dear Sir,
In your reply to Mr. Jamlok you have mentioned the stock split for ONGC as 1:5 by mistake. The correct ratio is 1:2. So along with the bonus buying 50 shares would result in a holding of 200 shares after bonus and split.
Regards
Siddhartha, Mumbai
Kalidas Says….Friday, December 17, 2010
Thanks for correcting me. You are right. After entire exercise, the stock price will be over Rs 335 or about. The stock will then compete with the likes of Cairns, GAIL, IOC, BPCL, HPCL and even RIL.
Siddhartha Shah
17 Dec 10 at 3:24 PM
Respected sir
Apology for posting my query in the wrong column instead of cmca Dec series.Actually the cmca page in my computer does not show ‘reply’ column and I am not a computer expert to sort it out.
I have purchased 4000 MTNL shares at RS.110 two years back in the euphoria of telecom reforms and land bank valuations.At rs.53 market price of today shall I add 8000 shares as per your recommended formula?
I thank in advance for your reply
Andheri-Mumbai
Kalidas Says….Thursday, December 16, 2010
Reg: Comment Box
It seems that the problem lies with the Internet Explorer browser even upto ver 8.0. Browsers like Firefox (which I use most) and Google Chrome does not have this problem. I am referring this matter to my web designer and also Microsft to resolve the matter. Until such time, install other browsers like Firefox, Googlle Chroma and Opera. One should have additional browsers to meet some exigencies.
Coming to MTNL, it is certainly a good buy for long term investors. The excessive losses disclosed now is due to provisions for retirement benefits of about Rs 330 crores which is normally non existent. There was also excess depreciation of about 170 crores, making up these items to Rs 500 crore against Rs 430 crores of losses mentioned. The stock has book value of Rs 149 per share with no debt. However, until its earnings recover, It is difficult to see this share going anywhere above Rs 100 in short run. It has been paying 40% dividend (on Face Value Rs 10) in the past except in last year when it was just 10%. Considering the dividend value of Rs 4 per share on stock price of Rs 53, the yield works out to near 8% – closer to bank deposits with chances of capital appreciation. Even if the company merges with others such as BSNL, its book value of Rs 149 alone should get more bargains and shares of the other or combined entity.
Yes, you can buy more – upto Rs 1 lakh (2000 shares) but trade it between CMP and sell around 71 for the time being. Invest Rs 1 lakhs mor (instead of MTNL) into following stocks:
ONGC – 50 shares at CMP. It will become 200 (amended from 500) shares in future after 1:1 Bonus and 1:2 (amended from 1:5) stock split. It will get you better return in short run than MTNL.
Confidence Petroleum: the LNG Cylinder manufacturer holds lot of promise. Trading at about Rs 19 or about, buy about 2500 shares (upto Rs 50,000). You may be able to double the price in 18 months which may not e possible with MTNL. In short, your recovery could be faster.
This way you are able to bring down not only the cost of MTNL shares but also recover your losses rather quickly. If you have more resources, better buy IOC, BPCL or HPCL to the extent you can afford it. You might see handsome profit of over 300% in less than 3 years.
jamlok
16 Dec 10 at 4:43 PM
Dear Anil ji,
I had sent you a mail to readers.kalidas@gmail.com Could you please reply to it? shall be really really grateful.
‘Bahot pareshan kar raha hai’..might be your reaction to this message.
-Rahul R R
London, UK.
Kalidas Says….Tuesday, December 14, 2010
I do not advise on Portfolio Management. I am starting this service as “Paid Service” from Jan 1,2011.
As a special case, I have replied. Check your inbox. Do not send me portfolio again by email. All queries must be addressed here, so that other readers benefit and do not ask repeat questions.
Rahul R R
15 Dec 10 at 5:34 AM
Sir,
“The stock is of course undervalued based on published balance sheet numbers, but the unknown element is as above. ”
By seeing a balance sheet which points determine and how to determine the value of the stock if its undervalue /overvalued.
Regds
Sameer
Pune
Kalidas Says…Saturday, December 11, 2010
Difficult to answer your point here due to limitation of space. You ought to have basic knowledge how the stock is usually get valued by stockbrokers, although the degree of weightage given by each broker is different.
I normally value the stocks based on prospective earnings and find out the appropriate multiple as applicable to the industry. I then compare the price of the stock with reference to future value based on projections. If it is far cheaper, then I go for it.
For instance, when I first suggested LICHF, the earnings then were hardly Rs 13 or about. Compared to EPS, the stock trading at Rs 180 was not very attractive. However, I worked out the prospective EPS based on future demand of the housing in India. I also considered the dominant position of LIC compared to HDFC and its deep penetration inside the villages. On this basis and prospective growth, I worked out EPS at more than Rs 60. Compared to such prospective EPS of Rs 60, the price of Rs 180 at that time looked very cheap (3 times P/E). I therefore worked out the price of Rs 1500 based on future projections.
It worked out exactly as anticipated. The stock did rise to Rs 1400 or more and then retracted.
One has to consider many factors – absolute fundamentals of the stock, position of the industry, the company growth, the industry growth, the economy’s growth, current and prospective P/E, global market for that industry etc etc. It is not as simple as it looks to be.
Sameer Apte
10 Dec 10 at 9:38 PM
Dear Anilji,
I had sent you a mail to readers.kalidas@gmail.com around 8-10 days back seeking your inputs. Could you please reply to it? shall be really grateful.
-Rahul R R
London, UK.
Kalidas Says…Friday, December 10, 2010
Replied. You may have to wait for detailed reply after 4 days by email since I am traveling during these days.
Rahul R R
10 Dec 10 at 7:09 AM
Sir,
In one of your answers you are asking to book profits for Silver at 48k per Kg. Do you see Silver having a correction at that level.
Regds
Sameer
Pune
Kalidas Says…Thursday, December 09, 2010
Any investment item that rises for 5 to 6 days in a row subjects itself for a correction. It has nothing to do with particular level. When the pace of rise begin to slow down, it suggests that the correction is very near.
Silver rosé very fast from 39K level to 45K level without any respite. I therefore expected it to correct with further slow rise by 5% to 7%. At the same time, Dollar Index reached new low suggesting that main enemy of Silver and Gold, that is, US Dollar was due for correction on the upside.
In other words, the scenario was set up for some correction. 50K is a very strong resistance level. The smart traders begin to sell within 5% of striking distance. So I worked out 48K level.
The long term trend on Silver is intact. It is heading towards my original target of Rs 60K. Since it has come close to 20% of my target level, I would sell some quantity to raise cash.
My upside target for silver is much higher. I am sure and convinced that Silver might hit Rs 1 Lakh within next 12 months. Nevertheless, I would begin to sell some when the price hits 50K or about. It is my experience that any investment item slows down considerably during its journey from 5 to 6 level (or its multiples of 10, that is, 50K, 500K, 5M, etc. Once it rises over 61K, the pace of rise will be much higher.
I would be a seller of Silver from 48K level, and add 10K each to 58K, 68K and 78K to sell 25% of my quantity in India held at distant center. The reason for sale is not only correction expected, but I also need to raise cash for my own farm operations.
I would still hold most of my Silver holding intact until Silver hits 92K or about. I would sell entire holding between 92K to 108 K level in stages and use the proceeds somewhere else.
Please note that the reason for my sale is very low cost of entry. My average price in India does not exceed 8K in all.
Sameer Apte
9 Dec 10 at 7:49 PM
good to see your comments. I am just like you … give my comments / opinion whether any one likes it or not.
Any ways why don’t you send this article to Prime ministers office, Financy Ministry, Planning Commission, Supreme Court, Sonia Gandhi, all political parties, and also to all media people.
Once it goes to media they will find out from all concerned why they are not in favour of appreciating rupee.
If you permit i can do it for you.
Sanjay Shah, Mumbai
Kalidas Says…Thursday, December 09, 2010
I did send to the following persons/departments:
1. Prime Minister Office
2. Finance Minister
3. Commerce Minister
4. 4 Governors and Deputy Governors of the Reserve Bank of India
5. Economic and Planning Commission and M. Ahluwalia
6. Economic Times
7. Hindu Business Line
8. Deccan Chronicles
9. Hindustan Times
10. Business Standard
No one replied or acknowledged or cared. That is India. In fact, such things happen everywhere including United States. The media wants to hear only from renowned names who are either from top broking firms such as Goldman Sachs, Morgan Stanley, Merrill Lynch etc etc.
“Agar tumare pichhe bada baap nahin, to koi parvah nahin karta”
And I do not care. I did my job but they don’t want to do their job. Yes, they will prepare their own notes copying my idea line by line, word by word and then publish or resubmit to others under their names.
It is enough my readers read me and digest. May be one day, one of my reader may become FM or PM and remember me for what I said.
Sanjay Shah
9 Dec 10 at 2:51 PM
Sir
What is this. you have not written for a long time. I think now you are free after your India trip. Please guide us whether we should invest in which IPOs or in secondry market or in Gold ? which shares or sectors are good.
Thanks
Ranjitha
Coimbatore
Kalidas Says….7 December, 2010
I am still in India, leaving for Hong Kong tomorrow and for USA on 11 Dec. I will be free to write the article from 15 Dec or about.
You can invest in IPO of Shipping Corporation of India, Indian Oil Corporation, SAIL in that order.
In secondary market, go for Ashtavinayak (more risk yet, more rewarding) which may give over 30% return in less than 30 days. Its earnings for December 2010 should be extremely good, considering the success of ROBOT, GOLMAAL 3, and DABANG. It appears that the stock is deliberately pulled down just to accumulate by the marketmakers. Once they have collected the stock enough, it should begin to move very fast with most of the times trading on upper circuit. This stock may give above average return.
Ranjitha
6 Dec 10 at 8:11 PM
Sirji..
When are you writing your next article?
Also I read your reply to one of the queries by one Mr. Sanjay Shah as “yet another timepass view…”. I would like to tell you that people ask you as they are not experts and ask for your opinion, but if you comment like this than it comes across as Arrogance.
I have read a few articles of yours. Sometimes your comments do sound like Arrogance. I am not saying that you are Arrogant but why give an impression like that. You can make an effort to check your tone while writing.
Thank you
Amit Jadhav, Mumbai, India
Kalidas Says……..Sunday, 28 November, 2010
I was wondering after my reply to Sanjay Shah why did not elicit reaction, adverse of course. That’s it. I did get belatedly from you.
Here is what Sanjay Shah said
It can be seen that his view was based on popular expression found in the loose talks. Indian economy is running into $ 1.3 trillions or Rs 58,500,000 crores. Now, what do you think. How much money the Swiss Banks are holding on behalf of entire rich persons’ populations around the world? What would be Indian politician’s share? Even top CEO of LICHF and Bank of India got themselves sold out for just Rs 1 crore or about. How much money the Indian politicians would have and compare it in % terms to the size of Indian economy. It is pittance. It can not move Rupee from 45.50 to 46.00 or 45.00.
We often tend to believe the numbers as churned out in the media. Often Indian diplomats, including Chairman of Planning Commission, do not know the difference between a billion and a million. I remember my good old days in Hong Kong when the DGM of our bank (Indian Overseas Bank) told the visiting General Manager in open meeting that it took him two years to understand the difference between 2 Lakhs and 2 Millions. I also remember that Chairman of Planning Commission said in old days that India was producing over 6 million cars when India was just producing only 600,000 cars.
To take a view on heresay or believe press or TV reports is nothing but a timepass view, I believed, so I said.
It is never my practice to be arrogant or become impolite to any reader. Same Sanjay Shah was replied extensively on previous 3 occassions. However, I have tendency not to mince words and be direct in my view which may be wrongly construed as “arrogance”. This column need reply in not more than two paragraphs. I can not spend too many words when only two words suffice the description. There was no intention to hurt Mr. Sanjay Shah or for that matter any other reader.
I want my readers to educate themselves and begin to take rational views after self deliberations. This is the only way to make their own character very strong and invest rationally. If you begin to believe the loose talks, then in Investments too, they will begin to believe the hypes. I want my readers to become discriminating and intelligent whlle evaluating any situation, be it political, social or Investment.
Amit Jadhav
27 Nov 10 at 8:44 PM
Kalidas saar
What is going on in market now a days ? It has become very volatile. Some newspapers are saying that spurt in market isdue to black money involved in 2G telecom scam brought back in India and invested in markets. Will the markets again crash when the names of industry people involved in telecom scam shall come out ?
You have not written for a long time. Please guide your followers fast.
Latha
Chennai
Latha
23 Nov 10 at 3:12 PM
one of the reasons for rupee devaluation would be huge amount of politician & business money lying in swiss banks or other countries. I dont find any other reason for rupee devaluation….
As soon as most of the money find their way in indian shores…. the rupee would start appreciating.
Kalidas Says………..Tuesday, 23 November, 2010
Yet another timepass view. When the readers will understand that black money is just tiny part of overall economy?
Sanjay Shah
22 Nov 10 at 11:54 AM
Dear Kalidas ji,
I am following your articles since 2007 from moneycontrol.com and now you have your own blog which is educating novices in stock market on how the market to looked.
Your visionary statements made in advance regarding gold, LIC housing finance, Oil refineries, stock market crash, currency wars etc. all have come true.
We are missing you a lot. Pls keep writing.
Thank you,
Raju
raju
11 Nov 10 at 6:31 PM
Kalidasji,
India has raised interest rates again as per the link below:
http://noir.bloomberg.com/apps/news?pid=20601010&sid=ad0E98NhAq40
I think this is ridiculous. He is trying discourage local credit growth where as the real problem is cheap money (borrowed at super low interest rates in developed countries) coming from outside India. Had they appreciated the currency as you recommended, they would not have had the need to tinker with interest rates.
By keeping currency appreciation under check they are further importing inflation and thereby neutralising the effect of interest rate hike (exactly as mentioned in this article).
My blood boils on this.
Let me know if I am right in my judgement.
Regards,
Atul
Singapore
02-Nov-2010
Kalidas says…Tuesday, November 02, 2010
Yes
Atul
2 Nov 10 at 10:40 PM
Kalidas Sir,
Bloomberg has today predicted doom for dollar and returning to gold standard again as reserve currency and bad days for world economy. These were exactly your thoughts some months ago. What is your latest take. Pl. enlighten in detail. You have not written for a long time. What are you busy with, ignoring your followers?
Kalidas says…Tuesday, November 02, 2010
The world economy is so much advanced in Paper and Derivative based currency that it is almost impossible to return to gold standard. If the world economy was to return to gold standard, then GDP growth will come down to negative 8% to even 15%.
Gold is a limited commodity. If trillions of dollars printed already are divided by the quantity of gold in circulation, then the gold prices might go to US$ 100,000 per ounce or in India it will be Rs 20 lakhs per 10 grams.
I rule out the possibility of return to gold standard. Paper can be printed in a factory, not gold.
I am not ignoring the readers by not writing the article. My present article is so good, informative and educative that I want this article to be read by as many students and economists as possible. Further, I was travelling a lot and was busy selling my family properties in India which I have completed only yesterday. I will be writing soon.
Sarika
2 Nov 10 at 4:04 PM
Dear Anil Sir,
Thanks for replying my query.
Following quotes from one of the blog open my eyes.
Till date I was in illusion that RBI must have some legal mandate over creating new money & they are just playing with their option within their framework. But after understanding from your reply that they seriously playing with our future.
“My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)”
“What the deflationists fail to acknowledge is that in a purely fiat monetary system, deflation is a choice, not an inevitability.”
Thanks.
Parag
Surat
Parag, Surat
13 Sep 10 at 12:15 PM
Dear Anil Sir,
I have following queries regarding Appreciation of Indian Rupee.
1) Is it possible for Indian Rupee to appreciate without having fully convertibility. If yes how?
2) In your article above you have mention that
Is this means RBI creating new money instead of going to open market to buy INR?
3) Now in case RBI buy Indian Rupee from open market (without creating new money) what are the possible effects on local Interest rate?
So how can RBI absorb all this massive money flow from Foreign Investors without creating new money & stable Interest rate?
I want to learn more about Money. What is the best source for this?
Thanking you.
Parag
Surat
Kalidas says…Sunday, September 12, 2010
My answers are:
(1) Yes, it can. In fact, it did during BJP regime when the rupee appreciated to 39 level of so. There was no convertibility even then.
(2) Yes, RBI is creating new money. That is what is causing inflation.
There is no need to absorb new money supply received from FII. When FII buy Rupee freely, the rates go up from Rs 47/$ to Rs 36/$ (say). When foreigners buy and domestic Indians or banks sell, there is equilibrium, and there is no more money supply. The rupee is automatically circulated less by 20%. Earlier, due to RBI sterlization program. RBI would not let the FII to sell the $ in the market, and therefore would create new money @ 47/$. there will be no buying pressure on rupee to rise, because the RBI gave the money to FII by printing more money.
Such printing of money does not work in long term. Look at Japan who did the same thing as RBI does now (in fact, RBI has adopted the Japanese model). What happened in the end. The Japanese economy still mired in deflation and negative growth. The Yen appreciated from 142 (when the Japanese started supporint dollar by selling yen, the RBI does for Indian rupee). which now stands at 83, that is, loss of 59 points or about 40% from original base level. It means that Japan has lost $400 millions equivalent in Forex losses. Earlier, Japan gave away 142 Million yen for every inflow of $ 1 Millions (@ 142). If Japan sells same $ 1 Million today, it will get back only 83 Millions yen – losing 59 Millions yen in the process.
China also adopted Japanese model first, but trying to shy away. This is why Bank of China governor is sacrificed blaming him for the loss of over $ 400 billions in forex losses.
It did not work in Japan, it did not work in China, It does not work in USA, so how could it work in India?
I have no recommendations on learning Money or Monetary Ecopnomics. There are several books around. Google your search. i was a banker before for 19 years, so I have gained the knowledge by experience.
Parag, Surat
12 Sep 10 at 3:49 PM
Dear Sir
Mr Pesek in his recent article ,”http://noir.bloomberg.com/apps/news?pid=20601039&sid=aleBhHBgwTXQ”
says that there is rumor on the theory that the U.S. is devaluing to help exporters is making the rounds.
Some more recent articles on the same theory are marked here
http://blogs.wsj.com/source/2010/08/23/getting-ready-for-a-dollar-collapse/
http://www.onenewspage.com/news/Business/20100822/14295010/Hussman-Bernanke-Quantitative-Easing-Is-About-To.htm
US may give some shady reason China is not allowing its currency to appreciate .So US has to devalue its currency for its exports to improve bla bla. But ultimately we may see all countries ( excluding Germany ) may opt for devaluation including financially illiterate India. Do you think this is possibility in next 18 months or so.
Shiva
Bangalore India
Kalidas says…Tuesday, August 31, 2010
This writer has history of being proved wrong in his analysis. I have personally interacted with him many years ago.
What products US will sell by devaluing its currency? There are no manufacturing industries left, and all high tech products such as Apple IPOD and IPAD, Cisco’s networks etc are all made in China, Malaysia and Taiwan where they are already reported as exports. The same item is again reported as exports from USA. There is obviously double accounting.
Will US export its nuclear capabilities? The only other items for exports are defence equipments which are again controlled by congress based on lousy human rights issues. US has only item to export – which is still in massive demand – which is US Dollar Currency which is printed in trillions and bought by all persons and governments around the world with massive internal resources. All these forex reserve in local currency terms is reducing not increasing. It is the local money that provide the purchasing power of local populace.
I would bypass his view.
shiva
31 Aug 10 at 8:23 AM
Sir,
This is definitely a thought provoking article and for those who think otherwise atleast a food for thought.
Sir you have quoted example of China on few occassions, but we see China itself is not allowing it’s currency to appreciate to promote its export. And isn’t that the goal i.e. promoting exports and in a sense discouraging imports?
You also mentioned that we should learn from US but sir the reality is US exports to the world technologically superior products than India or China which has relatively lesser competition. Take for an e.g. defense products. There are only a few countries who can supply technologically superior air crafts, tanks, ships / sub marines, etc. So US did not face the threat of reducing export when $ appreciated.
Also, Indian Services industry for e.g. tourism which are growing would be severly affected due to increased costs. The IT industry, we see that China is making strong efforts to produce english speaking work force and there are countries like Philippines and a few others who are trying to compete us. Today if India has that edge, it is only a matter of time that other english speaking countries will come up. So even the IT industry faces that threat of losing out.
These are some gray areas I feel. What are your thoughts?
I do not intend to challenge since I am neither qualified, wise or as experienced as you are sir. I am simply trying to go deeper into this subject to understand more.
Regards,
Sumit Gupta
Bangalore (India)
Kalidas says…Friday, August 13, 2010
First of all, read my article again – it answers many of your points.
The reason China is not allowing its currency to appreciate is not to increase exports. It is because its Forex reserve will be lower in local terms. China used to buy $ from 8.27 RMB/$, and today it is 6.83 RMB/$. At that time, US$ 1 Mln was bought paying RMB 8.27 Millions, and if it is sold, it would get RNB 6.83 Mln, losing RMB 1.44/$ or by 21% using present prices as base. In other words, if China sells say, US$ 500 Billions, it will lose US$ 100 Bln equivalent or RMB 683 Billions, besides notional loss on rest of its reserve of about $1.8 trillions. Same holds good for Japanese yen.
China is not discouraging imports – look at their numbers for capital goods imports etc. They have been buying Mines all around the world and Petroleum/gas assets using overvalued US$. Chinese are smart.
Rest of your points are already explained in my article. Read it again.
Sumit Gupta
13 Aug 10 at 7:49 PM
Dear Kalidasji,
Nice article!!!
By the way, link to ‘Subprime Resolved” is not working. I wanted to send the link to my American friend and a popular blog, but could not do so.
Please look into the problem.
Regards,
Dongre, Mumbai
Kalidas says…Friday, August 13, 2010
When I changed the theme to colorful one as you see now, link to the book purchase and other links were damaged. They are being repaired now. I will inform by way of announcement. thanks
Dongre
13 Aug 10 at 11:22 AM
ANNOUNCEMENT – ADDED Feature in Comments (Trial basis)
Many readers wanted to add the table which they could not. I am trying out new plug in in comment area, see below, where one can upload tables in Excel file format. DO NOT upload images – those posts will be deleted. Please enclose Spreadsheet files (Excel, Quotro Pro, Lotus), Word or WordPerfect files, PDF Files or other database files in Excel or CSV format.
This may answer the table requirements of many readers.
Anil Selarka (Kalidas)
Anil Selarka
6 Aug 10 at 5:12 PM
They will come to India anyway its too lucrative to pass it by.
http://www.nytimes.com/2010/08/05/business/global/05legal.html?pagewanted=1&_r=1
Martin
Goa India
Kalidas says…Thursday, August 05, 2010
This is what I said on “Allow Rupee to Rise” article that “Necessity dictate demand, not weaker or stronger rupee”. Those who want to buy (goods or services) are going to buy anyway.
Martin
5 Aug 10 at 3:00 AM
Dear Kalidas Saab,
This is an amazing article and a great eye opener. I am sure you will reach many many more heights with such deep knowledge and ever willing to help the needy.
Please keep up the good work and spread the light amongst us.
Kind Regards.
Sai…
Kalidas says…Wednesday, August 04, 2010
Thanks. Please write your city and country name to your signature.
Sai Prashanth Hariharan
4 Aug 10 at 3:27 PM
Dear Anil sir,
Is there any way to get this article published in leading news papers.Our country needs the service of great people like you.
Your such deep knowledge and experience should not go unutilised and unnoticed.It should not be confined only to this blog.
My sincere request to all readers to help to make Anil Sir’s articles get the deserved attention and recognition.
joy.joseph
Madurai,Tamilnadu
India.
Kalidas says…Wednesday, August 04, 2010
No newspaper is going to like my language – they will not publish it. They may copy the contents and write in their own language. I propose to print about 300 copies and send it to top leaders in opposition party, present government esp Prime Minister, Finance Minister, Commerce Minister, Planning commission, RBI, SEBI, NSE, BSE and Chairmans of all nationalized banks + private banks like ICICI, HDFC Bank, Axis Bank etc.
joy
4 Aug 10 at 10:27 AM
Dear Kalidas sir,
Waiting for such an update from you for a long time. It takes a lot of time to read and digest. Thanks for sharing. I had tweeted it in case I lose it and to share with others.
You should underline this in the beginning:
“As result, Indian goods were sold out abroad damn cheap and made the imports of essential commodities expensive to almost entire Indian society.”
This is the worst thing happening today. I hope congress and its allies would be wiped out of the country in the next four years.
Thanks for sharing,
Narender,
Bangalore.
Kalidas says…Tuesday, August 03, 2010
Thanks. You can download the full extended article from Box.net in PDF format. It is well formated and you will enjoy. Look for the link at the beginning of the article (near Ref and date)
Other suggestions are noted. I will deliberate over it.
Narender
3 Aug 10 at 9:38 PM
Dear Anil Sir,
I am trying to think that who will be the possible beneficiary of RBI policy of weaker rupee apart from Exporters. And why they love to see themselves so foolish. And that is why I have asked my earlier question.
Don’t you think that corrupt politicians & bureaucrats are somewhere in the picture? As most of us are somewhere in our minds have doubts, that our politicians & Bureaucrats (RBI too run by Bureaucrats) have unimaginable amount of black money in Swiss Banks.
When they are transferring those money to India, don’t you think that strong Rupee will hurt them?
I know you are not buying the argument of black money but apart from Genuine Exporters no one is looking great beneficiary of weaker Rupee.
Thanking you.
Parag
Surat
Kalidas says…Tuesday, August 03, 2010
It is always easy to apply “conspiracy” theory and populist belief of black money stored overseas. It is not that easy to place the funds abroad in very large sum, running into millions of dollars. There are now strict rule overseas after the terrorist attack in USA and Patriot Act in USA. Almost all banks are very much averse to see large amount flowing through their system if the customer is not known to them.
Most black money is used in India itself in property sector where the deals are on 50:50 basis. This is where the black money of officials or ministers lie. This is why the property prices are rising. If they want to use the money overseas, they have to open the account in benami name or trust someone who will ditch them finally. When they invest in property, the assets are in their control and at home where they are staying. These are illiterate people who are afraid to say even thank you or sorry. Further, No one keeps the money in dollar with full knowledge of the status of US economy regardless of its rising equity market.
Keeping the money in Swiss Banks is now a history. Those banks avoid tax avoidance money – look at what happened to UBS – who was forced to shell out heavy fines besides the names of tax defaulters. Swiss Banks will hardly allow the pan chewing Indians in dhotis to enter their premises. They do not want business at any cost.
The only reason that RBI or Finance Ministry allow weaker rupee is that they are “incompetent” and do not know how to make more money without even exporting single paisa of goods abroad. Dr. Manmohan Singh, the old age economist and bureaucrat – now a Prime Minister – had old set thinking to devalue the currency at the pressure of IMF. He still carries that education. He thought that weaker currency helped India on its recent path to prosperity without realizing that the inner core of the economy has started rotting. No one would wish to go against his thinking because he has been credited with the economic reforms and bringing Indian economy to the forefront. It was BJP who really carried out reforms and also Rajiv Gandhi who initiated it. They were the torch bearers.
When the top ranking minister like Prime Minister is strong advocate of devaluation, no one in RBI would even dare to go against his opinion. So he carries the old phobia with the result that the nation is suffering.
Parag, Surat
3 Aug 10 at 7:25 PM
Sir
If it was so simple as mentioned in your article that all of India’s problems would have been solved the government and the renowned economists would have done so by now and perpetuated their rule every 5 years. There may be other reasons that maybe you and i are not aware of that forces RBI and government to adopt present policy. RBI has to balance everybody’s interests (exporters). It is not as simple as in your article.
princeofindia
Abu Dhabi
Kalidas says…Tuesday, August 03, 2010
Yes, there are other reasons. INCOMPETENCE.
The things are very simple. It was complex but I have explained it easy and simple way.
My father taught me “do not use intelligence when common sense is enough”
princeofindia
3 Aug 10 at 7:01 PM
Dear Sir,
Excellent article! you make it so simple for a layman to understand. Qudos to you for such a wonderful article.
However, I always had this question as to what does the Indian goverment/RBI achieve by devaluing the currency. what is their logic/explanation?
How does the goverment/RBI stand to gain if the rupee does not rise?
regards
Sam, Mumbai India
3rd August – 4:30pm IST
Kalidas says…Tuesday, August 03, 2010
They do not know what they are doing.
They gain goodwill from export and IT sector which has higher profile. Also goodwill from black money hoarders who park the funds overseas.
Samir
3 Aug 10 at 7:01 PM
Dear Sir,
Excellent Article,
I Hope that this article will open the eyes of RBI and Finance Ministry.
Thank you again for the good work that you are doing for us.
Regards
Sakchi, New Delhi, India
sakchi
3 Aug 10 at 4:49 PM
Thanks for the article sir .
.
FYI : Money control message board now support HTML and images and even hyperlink . Its a diff matter whether they will like and allow firm and opinionated post like yours
I would , once again urge you to login to new MMB and post few messages to your fans and friends on MMB.
sachin , pune, India .
Kalidas says…Tuesday, August 03, 2010
No need to go back to MMB. Most followers are day traders and talk of “takori language”. I have had enough of them already.
sachin
3 Aug 10 at 12:11 PM
Nice article sir. I had always considered p-notes as one of the evils by the government of India, but after reading this I have add up this point also.
Perhaps you should also list your wisdom and viewpoint on P-Notes to us some time.
In the article you mentioned about exporters being on the wrong side of strong rupees. But another factor to consider will be cheaper imports that may uproot the local Indian industry. As it is China is able to shut down many industries in India with their cheaper products. Now after stronger rupee many other nations will be able to export to India much cheaper than the local products.
Thanks and Regards.
Akhilesh Singh
Noida, India
Kalidas says…Tuesday, August 03, 2010
P-notes affected only stocks and bond markets, not whole spectrum of economy. Devaluation hurts all including a man in the main street.
Most of the imports are now on OGL basis. Cheaper goods can be imported even now. There were no surge in imports when the Rupee rose to Rs 39.
The people in the street do not buy the goods made by Indian factories all the time – they buy daily necessities every day in and out, every hour, every minute like use of gas, coal, kerosene, petrol, electricity, rice, pulses. edible oil, milk etc. Even within India the manufacturers or traders face competition from new entrants or existing competitors – there is no currency involved. Many close down due to their inability to compete with others even domestically where exchange rates do not play any role.
When the people are not able to compete, they indulge in fault finding. They resort to non verifiable items such as exchange rates = that its strength allowed foreign producers to dump their products. Think it other way, would not foreign consumers feel the same way that Indian goods are dumped into their country which forces down the closure of their domestic industries due to weaker rupee?
Akhilesh Singh
3 Aug 10 at 3:29 AM
dear kalidas,
good article and hope this fire will catch everyone for their own good..
btw are you the same who used to write in moneycontrol message board ..?
best
Kalidas says…Tuesday, August 03, 2010
Yes. I stopped writing there due to unfriendly format (text only) which does not enable me to post tables or formated posts.
sri
3 Aug 10 at 2:01 AM
Dear Anil Sir,
As per your article except exporters no one is benefited due to weaker Rupee. For India Gems & Jewelery & IT services are the biggest gainer of weaker rupee.
So what do you think that prompt RBI to keep the rupee weak?
Is exporter lobby too powerful & not ready for short term pain?
Thanks.
Parag
Surat
Parag, Surat
2 Aug 10 at 9:12 PM
Hello Kalidas Sir,
Request you to pen down an article on “A Day in Kalidas Life” which prescribes your daily routine on how you go about NEWS hunting and even better analyzing and predicting the troubles over the horizon.
Can you also do something on creating Arjun’s in the Kurukshetra of Finance as you yourself are the Dronacharya in it.
Regards,
Dhaval (Mumbai)
02-08-2010
Kalidas says…Monday, August 02, 2010
Do not make me larger than life. Other suggestions are noted and will be worked upon if needed.
Dhaval
2 Aug 10 at 7:18 PM
Kalidas,
Wonderful article. Your views on higher INR were known but this article gives very good insight to your thinking.
Thanks a lot for enlightening your followers.
God bless you.
Regards,
Mohan Mumbai India
Kalidas says…Monday, August 02, 2010
Thanks
Mohan
2 Aug 10 at 4:23 PM
Dear Kalidas sir, What an article. One stroke by the govt can do wonders. Hope your article will provoke the authorities and may do needful. seeking your permission to send the article to all my friends by mail.
Thanks and regards
Ravi, Chennai, India
Kalidas says…Monday, August 02, 2010
My permission is not necessary in forwarding the article to others. There is already a button at the bottom of the article allowing you to share. If you want to send by mail, send it the link or wait for one more day to get PDF copy from Box.net or Scribd.com.
Raviprakasham
2 Aug 10 at 3:58 PM
Guru,
Thought provoking, this spark should ignite a revolution. I will contribute to this cause by spreading this fire to as many as I can.
-Venkat
Chennai,India.
Kalidas says…Monday, August 02, 2010
Thanks
Venkat
2 Aug 10 at 2:54 PM