Saturday, November 29, 2008

India Juggles Terrorism With Financial Meltdown: William Pesek


Headline-grabbing bombings in India’s business capital are sadly commonplace. Yet this week’s attack was something different: It was aimed at key tourist hotels and restaurants. It greatly raised the stakes for Asia’s third-biggest economy.

While China, Japan and the rest of Asia are grappling with the fallout from a global credit meltdown, India now has a second crisis on its hands: domestic terrorism.

Having your people blown up randomly is tragic enough. Dealing with attacks aimed at thwarting the very prosperity a government is trying to create to soothe social tensions is quite another. Just as the Bali bombers in 2002 did huge damage to Indonesia’s economy -- costs that continue to be counted -- India’s militants are aiming higher, so to speak.
To read more, please, visit - Bloomberg.com: Opinion

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Sunday, November 23, 2008

4 Indian realtors lose Rs1,50,000cr in 8 months: Forbes

Hit by the turmoil in equity and property markets, India's four richest realtors have lost nearly USD 33 billion (over Rs 1,50,000 crore) since March this year, with the richest of them, K P Singh of DLF, alone accounting for about two-thirds of it, Forbes magazine said.

Listing out the losses suffered by richest property owners in Asia in the ongoing turmoil, in a new report Forbes has named DLF's Singh, Unitech's Ramesh Chandra, Chandru Raheja of Mumbai-based Raheja group and Housing Development & Infrastructure Ltd's Rakesh Wadhawan among the eight realty barons from the region. To read more, please, visit - :Forbes - The Times of India

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Friday, November 21, 2008

The township advantage

Note:

This article is an ideal example of "news marketing" current trend of converting advertising message into news story. But it is worth reading.

Mr. Prakash Gurbaxani represents Indian and foreign direct investment in Indian real estate. Mr. Satish Magar, you know, represents farmers' direct investment in real estate. Both share one common reference - Indian Growth Story - now, history! So while reading the story, we should remember what Karl Marx said:

History repeats itself, first as tragedy, second as farce.

Should You Invest?

“Due to changing preferences of customers and the expected higher demand for township homes, these become a better option for investment. Also, since integrated townships are self-sustaining, they are less vulnerable to volatility in the market,” says Prakash Gurbaxani, CEO, QVC Realty. On an average, 10-12% annualised appreciation is a reasonable expectation over a 5-7 year timeframe, the property value would double in 6-7 years, he adds.

“At Magarpatta City, people who booked flats in 2000 did so at Rs 1,000 a sq ft; now the rates have gone up to Rs 3,500 a sq ft. Many people have sold their flats and upgraded to bigger ones. That is a much better return than anything within Pune city,” says Satish Magar of Magarpatta City.
To read more, please, visit - Rakesh Rai - Money Today

Related Stories:

1) Truth about Nanded City Pune: Land belongs to the farmers but we own our homes and it's our town

2) How many cancellations happened at Blue Ridge?

3) Should i cancel my booking at Nanded City Pune?

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Wednesday, November 19, 2008

Truth about Nanded City Pune: Land belongs to the farmers but we own our homes and it's our town

Moment of truth:

If you read my post - How many cancellations happened at Blue Ridge? - on the confirmation process of a flat at Nanded City Pune and the experience shared by the readers you will realize an ultimate truth about investing in real estate and about the inclusive growth model of Magarpatta.

Inclusive Growth:

No doubt, Magarpatta City and Nanded City Pune are the ideal models of "inclusive growth" where land owner farmers join hands and develop sustainable residential township which is possibly the only answer to unplanned growth of Pune or any city in India.

Mr. Satish Magar:

In this process, land owner farmers become the owners, means share holders of development and keep on getting returns on their investment, in the proportion of the land they contributed in the project. For inventing and executing this unique concept, I consider Mr. Satish Magar as not only an innovative entrepreneur but socioeconomic revolutionary.

Buyer Owners:

However, when land becomes the township Mr. Satish Magar should not forget the other set of owners who join the process. This set of owners should get their respective rights and treatment as share holders like the farmer land owners. Because property buyers own their homes and contribute to the township in many ways.

What is your take on Nanded City Pune?

When you expressed your intention of booking a flat by paying Rs. 50,000 or Rs. 1,00,000 and agreed to the property rate of Rs. 2,750 or Rs. 3,250 per sq.ft. without any document or work on site, you expressed your faith in Mr. Satish Magar.
Obviously, you must have cherished some expectations about Nanded City Pune. The first commentator experienced big "Disappointment" when he went to the site office for the confirmation of his flat. He was expecting to be treated as a proper customer. Options of the plans to choose from, was one of the basic expectation.
What are your expectations about Nanded City Pune? I feel we have to prepare a wish list which could become ground rules of the relationships between the buyers and the developer. Please, share your views in the comments. (Comments Policy)

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Monday, November 17, 2008

Lessons from Global economic crisis

The current economic crisis has taught us three important lessons.

One, globalization has a significant impact on all countries including those that have not opened up completely.

Second, innovation must be based on economic fundamentals. Any irrational exuberance will always come back to haunt us like the present global crisis.

Third, excessive greed will always have disastrous consequences and development and growth must be inclusive and not limited to a few lucky people. To read more, please, visit - The Economic Times

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Friday, November 7, 2008

FM whips banks, gets all rates cut

Hesitant PSBs forced to slash by 75 bps:

Just before noon on Thursday, the Ficci-IBA Banking Conference was gathering pace at the Grand Hyatt in Santacruz East, Mumbai, when a public sector banker got a call.

Nobody knows where the call was from, but what followed was enough to set the dovecotes aflutter.

Disconnecting, the banker went into war-dial mode, as did some officials of Indian Banks Association (IBA). To read more, please, visit - DNA

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Moody's reaffirms ICICI Bank ratings with stable outlook

International credit rating agency Moody's on Monday assigned ICICI Bank the highest baseline credit assessment for any Indian bank, while re-affirming all its existing ratings for the bank with a stable outlook.

While noting that all its ratings for ICICI Bank 'carry a stable outlook,' Moody's said the deposit and debt ratings, which continue to factor in imputed systemic support as earlier, remain unchanged, while its baseline credit assessment (BCA) has been revised from Baa1 to Baa2, which is highest for BCA level assigned to Indian banks.

'Moody's view that ICICI Bank's BCA should be aligned to the same level as rated peers, takes into account the challenges faced by it in maintaining its strong earnings profile, its good asset quality as well as its capacity to refinance its foreign currency funding needs in the current difficult global markets,' said Nondas Nicolaides, lead analyst at Moody's for the bank.

When contacted, the bank officials said the change in BCA is mainly because of the overall macroeconomic scenario prevailing in the country. To read more, please, visit - NDTV

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Wednesday, November 5, 2008

India could still log 4-6% growth - Hamilton E James, COO, Blackstone

The global financial meltdown and how it will impact India

Hamilton E James has been the president & chief operating officer (COO) of global private equity firm Blackstone since 2002. Earlier, Mr James was chairman of global investment banking and private equity business at Credit Suisse First Boston and a member of its executive board. Mr James, an alumni of Harvard Business School, is a frequent visitor to India for the past one decade. He says the India growth story will continue, albeit at a slower pace.

In an exclusive interview with Kausik Datta & Dev Chatterjee, of The Economic Times Mr James talks about the global financial meltdown and how it will impact India. Excerpts.

What is your take on the current global financial meltdown?

It is frightening. I was in New York two weeks ago and it is different out there. The risk of the failure of the whole system is very, very real. The US alone is bailing out its financial institutions for well over $1 trillion. Plus, the Europeans are shelling out another $1 trillion in bailouts. And it is still not clear whether it is enough. There are some countries where the liabilities of their financial institutions are now more than the assets of these countries. For example, in Iceland, banks have more liabilities than the country’s assets.

To what extent this financial crisis may impact India?

I don’t know how we can measure its impact on India. But it has obviously impacted the Indian currency. It makes some Indian businesses competitive, but most of the businesses are badly hit. It has also impacted the stock market, as investors are taking out money to invest in low-risk markets. A lot of wealth of any economy in emerging markets comes from real estate. When you are developing a real estate project, you have to start two or three years in advance.

As companies will not be taking up those space, a lot of wealth is lost in the way. What can happen now is a real estate bust, as real estate prices will start coming down sharply. And that affects psychology, as corporates will start cutting down on expenditure and consumers will stop spending. India is quite healthy and it has already taken steps to see that its financial system is stable, but all these other problems will start seeping into the economy and start affecting the psychology of the people. But we are a big bull on India. We think, India will continue to grow, but not at the pace earlier.

Is it the right time to scale up your investment activities in India, as valuations are now down to more realistic levels?

Yes, valuations in India are down by almost two-thirds. Besides, many companies, which wanted to go public earlier can’t do that, as the stock market is down and many companies will have a hard time borrowing. So, this is a good opportunity for private equity (PE) companies like us for investments.

What growth rate you think is achievable?

It will be certainly challenging. I think, India should do 4-6% which is not bad at all. But when you are used to do 7-8%, it feels a lot worse than what it is.

What kind of fund you have for India?

We have a global fund of $20 billion and we invest across the world with that fund. We started in India three years ago with an investment of $1-billion, spread over five years. We have already surpassed that investment by twice that much. The next six months give us a good investment window. But there are concerns, as general elections are coming up. India has some geo-political issues with Pakistan. I think, India is on track of good economic growth with a burgeoning middle class. We are here for long term.

Blackstone is quite selective about investing in companies. Still, some of its investments in India have not done so well. What do you think has gone wrong?

We are in a risk business and it is a difficult business. If this was easy, everyone would have done it. We have portfolio of companies which are performing very well and we will make good money in all of them. So, I am pleased with what we have done so far. We had made investments in a media company in which political issues were involved and it had nothing to do with Blackstone. Having said that, we are still looking for investments in the media segment. We have gained knowledge from those investments. In the textile business, Gokaldas Exports is doing quite well and it is ahead of target.

Which sectors are you looking at?

In the real estate sector, a huge amount of supply is now coming in the market and inventories will now go up. It will be hard for developers to get money. Prices in real estate will fall more before they become attractive to us. Media is another sector which we like, especially the local language newspapers which are growing. We are also looking at infrastructure sectors like ports, nuclear plants, healthcare. The companies providing affordable and high-quality healthcare could be a good area for investment. We are looking at a number of energy related deals to help India to become energy independent. That could be power, oil and gas, drilling, transportation. All parts of energy chain are quite interesting for us.

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Tuesday, November 4, 2008

How are foreign exchange rates determined?

Rupee posts biggest single-day gain since 1998


The rupee posted its biggest single-day gain in more than a decade on Tuesday, driven by another rise in shares, heavy dollar sales by a large corporate, and the unwinding of long dollar positions by banks.

The partially convertible rupee closed at 47.69/71 per dollar, 2 percent stronger than 48.64/65 at Monday's close. Last week, the rupee had dropped to a record low of 50.29.

It was the biggest single-day gain for the rupee since Jan. 19, 1998, when the rupee had risen 3.6 percent after the central bank had taken a number of steps including a hikes in the cash reserve ratio, repo rate and bank rate.

"There was a lot of dollar supply and no real demand in the market," said Agam Gupta, head of forex trading at Standard Chartered Bank. Dealers said dollar inflows from a large pharmaceutical company also helped the rupee rally. The Economic Times

"The increase in dollar value is due to the widening gap in trade deficit, high oil prices and FIIs pulling out money."




Exchange rates between currencies can be either controlled as in the case of India prior to the reforms or left to the market to decide, as is the case now in India.

In the case of controlled exchange rates, it is quite obvious that the government would fix them, so the question really boils down to what is the process by which markets determine rates.

The process is really not different in its essentials from the way any market functions. The supply and demand for different goods determine what their prices are. In this case, substitute currencies for goods. Lets take the case of one foreign currency to understand how this market works.

Thus, the dollar-rupee exchange rate will depend on how the demand-supply balance moves. When the demand for dollars in India rises and supply does not rise correspondingly, each dollar will cost more rupees to buy.

Where does the supply of dollars come from?



The supply of dollars comes from several sources. One obvious source is Indian exporters of goods and services who sell their wares in the international market for dollars. Another important source is Indian immigrant workers abroad who repatriate money to their kin at home.

The third major source is investments by foreign individuals, companies or institutions in India. This could be in the form of foreign direct investment where they are using the money to create some assets in India or to buy into the equity of an existing company.

It could also be in the form of portfolio investments where dollars are being brought in to buy assets in the stock markets, for instance, with the purpose of selling these assets when they appreciate in value to book a profit. While all these forms contribute to the supply of dollars, it should be obvious that the last of them portfolio investment is a relatively uncertain source, since it necessarily implies an exit of dollars at some point.

That explains why such flows of capital from abroad are often described as hot flows, since they can move out very rapidly. Foreign tourists visiting India would also contribute to the inflow of dollars.

What factors determine the demand for dollars?



Just as exporters earn dollars, importers spend them. Imports are thus the most important source of demand for dollars.

Another major source of demand is individuals or companies repatriating incomes or profits to their home countries.

This would include portfolio investors as well as Indian branches of multinationals sending back some of their profits to the parent company as dividends.

A third source would be Indians investing abroad, whether as firms or as individuals. Besides this, of course, the forex you buy when you travel abroad is also adding to the demand for dollars.

As you can see, the factors that contribute to the demand for dollars are mirror images of those that add to their supply.

What explains the rapid increase in the value of the dollar recently?



As should be clear by now, this is because the demand for dollars is surging when its supply is not. A couple of factors have been particularly crucial in this.

First, the trade deficit the gap between the value of our imports and that of our exports has been widening, meaning exporters are earning a smaller proportion of the dollars that importers need. The high prices of crude oil have been a large, but not the only, factor.

Second, foreign institutional investors (FIIs) who had been pumping billions of dollars every year into a booming Indian stock exchange have this year been equally desperately pulling out their money thanks to the financial crisis facing them in their home market.

What role do expectations play in all this?



As in any market, expectations and the consequent speculation play a significant role.

For instance, when there is an expectation that the dollar will rise against the rupee, exporters tend to hold back their earnings for a while in the hope of getting a higher rate when they ultimately bring their dollars in.

This, of course, skews the supply-demand equation even further confirming their initial expectations and thus setting off a vicious cycle.

Similarly, importers who expect to pay more for their dollars tomorrow will try and buy up as much as they can today, adding to the current demand and making the dollar rise even more. Currency traders in such a situation would also try to benefit by betting on what the future price of the dollar would be.

What can the RBI do about it?



With hundreds of billions of dollars in its reserves, the RBI would seem to have the ability to be a major factor in how the dollar moves.

If, for instance, it were to dump a huge amount of dollars in the market, it could dramatically add to the supply and hence reduce the price. There are at least two major reasons why central banks are reluctant to do this.

First, they do not like to interfere too much with market valuation of currencies, though they do try and contain excessive volatility.

Second, every time the RBI sells dollars, it buys up rupees, thus sucking some liquidity out of the system. Given the current liquidity crunch, that is obviously not something it would be very keen to do.

Do we gain or lose when the rupee depreciates?



The answer is less simple than it might seem. Exporters clearly gain when there is a depreciation, since they can price their goods cheaper in dollars and yet earn the same amount of rupees, making them more competitive internationally.

However, importers lose because their costs go up and since they are likely to pass this on to consumers it means costs in the economy rise.

In theory, as import costs rise, imports should fall and with exports rising the trade gap should close thereby correcting the demand-supply mismatch in dollars and leading to the rupee appreciating again.

In practice, this often does not happen. One reason is that not all imports may be price elastic that is, some imports might not be reduced despite higher costs. The same may be true in exports, where some exports may not gain since their demand is not price elastic. Also, other factors including speculation may more than offset any reduction in the trade deficit.
-The Economic Times

Related Story:

1) NRIs take advantage of the current situation of high exchange rates and interest rates - Venugopalan

2) Investment opportunities for Non Resident Indian (NRI) in India

3) Is this the right time for NRIs to book a flat at Amanora Park Town?

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Monday, November 3, 2008

What next for India? - Nirvikar Singh

The real concern should be the following two years, when a global recession will bite deeply. But short-term challenges remain. Here are some challenges and suggested policy responses—the theme being, fix only the actual problems and tackle them closest to the source.

Solvency

Providing ample liquidity avoids creating artificial insolvencies, but some institutions may genuinely have to go to the wall if their assets, properly valued, do not cover liabilities. One area of vulnerability is the real estate sector.

Other sectors where investment has been aggressive may also see weaker firms face problems. India has no proper bankruptcy laws. A potential crisis may be an opportunity to create some streamlined procedures for restructuring.

There will be secondary effects on the banking sector if real estate and other loans start going bad, and loosening monetary policy may provide a cushion. Essentially, RBI has to try to engineer as soft a landing as possible from the real estate bubble. To read more, please, visit - livemint.com

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2) Can our banks weather the financial crisis? - PSM Rao

3) Vijaya Bank moves to control home loan defaults

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India unlikely to move towards zero interest rate

While expectations are building up for further rate cut in India as well, the bankers here believe that a zero-level rate does not seem likely even remotely.

“That (0% interest rate) looks very difficult in India. Given the liquidity situation and macroeconomic factors, interest rate below one per cent seems a highly unlikely proposition,” UCO Bank Chairman and MD S K Goel said.

But, it is not the case with the US and Japan, as well as some other economies where a zero-interest rate is being talked as quite a possibility in the current economic scenario when borrowers are hard to find and liquidity is not enough.

Under a zero interest rate policy, which is also known as Quantitative Monetary Easing Policy, a central bank uses money supply, rather than interest rate, as the main monetary easing tool.

When Japan slashed its benchmark rate to 0% for five years between 2001 and 2006, it was mainly to fight deflation concerns and revive economic growth.

However, a zero benchmark rate does not guarantee nil interest cost for consumers or corporate borrowers. It applies only to the banks parking their funds with the apex bank and borrowing from each other. The interest rates applicable to the consumers and corporate customers, however, tend to decline considerably.
livemint.com

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Secure your family with a home loan cover

Q

I am a home loan customer of a leading bank. I wanted to know if it is necessary to get my home loan insured. Please explain the various options available.

Renu Sud Karnad:

Since a home loan is a huge financial commitment for a long duration (15-20 years), it is advisable to get home loan insurance cover for the loan amount in order to safeguard the interest of your family in case of any eventuality.
HDFC’s group company HDFC Standard Life Insurance offers a “home loan protection plan” which has been specially developed to suit home loan customers. This plan is a single-premium decreasing-term assurance plan which ensures that the outstanding loan, up to the amount insured, is adjusted/repaid in the event of death of the borrower. This serves as huge security for the family during the term of the loan. It is possible to include the premium in the loan amount itself and repay as part of the regular instalments. Ask Mint | - livemint.com

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IDBI Bank cuts home loan interest rates by 0.5% and increases own contribution

Following the revision, the home loans will be now available to customers for an interest rate of 11 per cent as against 11.5 per cent earlier, the bank said.

Simultaneously, the margin on housing loans has been enhanced from 15 per cent to 20 per cent for loans up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh, the bank said. To read more, please, visit - Express India

Related Story:

Be ready to pay as much as 40% own contribution upfront if you are planning to buy a home on a bank loan

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Blackship Infrastructure's exclusive offer for it's Mega Township 'Black Hole' at Kalewadi!
- subscribe to read my next blog!)

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