Thought for the day
" When small men attempt great
enterprises, they always end by reducing them to the level of their
mediocrity."
-
Napoleon Bonaparte (French, 1769-1821)
Word for the day
Philosophaster
(n)
A person who has only a superficial knowledge of philosophy
or who feigns a knowledge he or she does not possess.
(Source:
Dictionary.com)
Teaser for the day
ET headline yesterday talked about
an in-camera meeting of CII, where a critical evaluation of government's
performance was made.
Are they scared of Modi?
If yes, why?
Show me the Dollars
In the summer of 2007, I had just moved to the financial capital
Mumbai from the political capital Delhi. The mood was as buoyant as it could be.
Everyday plane loads of foreign investors and NRIs would alight at Mumbai
airport with bagful of Dollars. They would spend two hours in sweltering heat
to reach the then CBD Nariman point (Worli Sea link was not there and BKC was
still underdeveloped), and virtually stand in queue to get a deal where they
can burn those greenbacks.
Mumbai properties were selling like hot cakes. Every day one
used to hear some mega property deal. NRIs from middle east, Europe and US were
buying properties without even bothering to have a look at them.
Bank were hiring jokers for USD 100 to 500k salary for doing
nothing. I was of course one of these jokers!
That was the time, when sub-prime crisis has just started to
grab headlines. Indian economic cycle started turning down in spring of 2007,
with inflation raising its head. RBI had already started tightening. Bubble was
already blown and waiting for the pin that would burst it.
INR appreciated more than 10% vs. USD in first six months of
2007.
INR depreciated over 75% during period from January 2008 to
August 2013. This was the time when Fed was printing USD at an unprecedented
rate. There was no shortage of EUR, GBP and JPY either.
The point I am making is that in the present times when most
globally relevant central bankers are using unconventional policy measures to
stabilize their respective economies, the value of currency is seldom a
function of demand and supply alone.
Regardless of the economic theory, it is the faith of people in
a particular currency that is primary determinate of its relative exchange
value.
2005-2007 was the time when the Indians had developed good faith
in their currency. Local people were happy retaining their wealth in INR
assets, despite liberal remittance regulations and NRIs were eager to convert a
part of their USD holding in INR assets.
The situation changed 2010 onwards. There is no sign of reversal
yet. Despite huge popularity of Narendra Modi amongst overseas Indians, we have
not seen any material change in remittance pattern in past six months. Despite
tighter regulations, local people appear keen to diversify their INR assets.
Most of the USD inflows have come from "professional
investors" who invest others' money to earn their salaries and bonuses.
These flows are bound to chase the flavor of the day, not necessarily the best
investment. Whereas the outflows are mostly personal, or by corporates with
material promoters' stakes.
In my view, no amount of FII/FDI money can strengthen INR if
Indian do not have faith in their own currency. Yield and inflation have become
secondary considerations.
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