Five Frontier Issues in Indian Banking...by Dr. Duvvuri Subbarao

Excellent address by RBI Governor to  bankers at  the BANCON 2010, here he talks about the way indian banks withstood during crisis and regulatory change which is going to happening in form of BASEL 3 accord.

He put forward some ideas and asked banks to discuss on it .

First Issue : Are Indian Banks Prepared for Basel III? 

The building blocks of Basel III are by now quite well known: higher and better quality capital; an internationally harmonized leverage ratio to constrain excessive risk taking; capital buffers which would be built up in good times so that they can be drawn down in times of stress; minimum global liquidity standards; and stronger standards for supervision, public disclosure and risk management. 

 The Basel III package includes capital buffers to contain the pro-cyclicality of the financial sector. Building capital buffers will entail additional costs for banks with consequent implications for investment and hence for overall growth.

Building Buffers will make the capital ideal and will not add anything into productive, it is meant to use at bad times(its like putting more money in savings deposit(RBI) for interest rate...there by curtailing the lending power of banks to some extent.

To effectively deploy countercyclical measures, we also need to improve our capabilities to predict business cycles at the aggregate and sectoral levels, and identify them in real time. This will require better quality of economic and financial data as well as improved analytical capabilities.

 In India the data collected from Ministry of Statistics is sometimes inadequate to predict the right conditions across the economy as well as markets, we need a more reliant  streamlined data from each  sector across the eonomy . I guess this can be done only when government makes a regulation for mandatory data submission from each  department where it works...example:Collect all the land registrations across Pan India to get a feel of real estate sector pricing, collecting pricing from companies which manufacture the products etc..

Estimates show that the leverage in the Indian banking system is quite moderate. Notwithstanding the fact that the SLR portfolio of our banks will be included in computing the leverage ratio, Indian banks will not have a problem in meeting the leverage ratio requirement since the Tier 1 capital of many Indian banks is comfortable (more than 9%) and their derivatives portfolios are also not very large

 Indian banks will not have problem in meeting the ratio as long as real estate value goes up,but once it starts coming down, we might feel the pinch.Though the derivatives positions of banks are not large our banks show significant revenue from trading.

Second Issue:  Should Indian Banks Aim to Become Global?

The second issue I want to address is one that comes up frequently - that Indian banks should aim to become global. Most people who put forward this view have not thought through the costs and benefits analytically; they only see this as an aspiration consistent with India’s growing international profile.

 Are our banks ready to become global and ready to meet the demands of global citizens..( Can Mittal bank on Indian bank to fund a major acquisitions across the globe?). Though SBI missed the boat of acquiring Citi Bank when it was trading at 1$ at the hieght of finanacial crisis due to government inefficient bureaucracy.

Can Indian banks aspire to global size?

As per the current global league tables based on the size of assets, our largest bank, the State Bank of India (SBI), together with its subsidiaries, comes in at No.74 followed by ICICI Bank at No.145 and Bank of Baroda at 188.  It is, therefore, unlikely that any of our banks will jump into the top ten of the global league even after reasonable consolidation.

 Should Indian banks aspire to global size?

Opinion on this is divided. Those who argue that we must go global contend that the issue is not so much the size of our banks in global rankings but of Indian banks having a strong enough global presence. The main argument is that the increasing global size and influence of Indian corporates warrant a corresponding increase in the global footprint of Indian banks.

The opposing view is that Indian banks should look inwards rather than outwards, focus their efforts on financial deepening at home rather than aspiring to global size

Third Issue: Should We Mandate Foreign Banks to Come in Only as Subsidiaries?

 Here he talks about the subsidiaries role in indian context

Fourth Issue:  Why Do We Need to Rewrite Laws Governing the Banking Sector?  

Infact banking laws helped us to maintain a orderly banking system during crisis. 

Requirement of minimum paid up capital and reserves, restrictions on payment of dividend, transfer of a percentage of profits to reserves, maintenance of SLR, restrictions on connected lending, maintaining a percentage of domestic liabilities as assets in India have all helped the Reserve Bank in preventing crises and maintaining financial stability.

 Fifth Issue : Where Do Indian Banks Stand on Efficiency Parameters?

There has been a particularly discernible improvement in banks’ operating efficiency in recent years owing to technology upgradation and staff restructuring 

 One such is Core Banking System which helped banks to offer more services and reduced the time lag in delivering the services

He advised the banks to raise the interest rates offered to depositors and reduce the lending rates charged on borrowers - in other words, reduce their intermediation costs, or in technical terminology, reduce the net interest margin (NIM).

This will lead to decreasing margins for banks and i beilive this lead to Bank Sector tanking down 3%  in today's market.

Macroeconomic and Monetary Developments --RBI Second Quarter Review

RBI in its 2nd quarter review is more concerned about the inflation  and the capital inflows coming into EME which might lead to currency appreciation and asset price bubbles. Also talks about Current account deficit and Capital Account surplus and going forward how its going to be. One can get a Good understanding of Economics by reading this Report

The output growth of the Indian economy has started to consolidate around the trend
after a sharp recovery and the headline inflation also shows signs of peaking off. Going
forward, various forward looking surveys conducted in the recent period suggest strong
y-o-y growth. The Industrial Outlook Survey of the Reserve Bank also points to
continuation of the growth momentum. The professional forecasters’ survey of the Reserve
Bank registered a marginal upward revision in the GDP growth rate for 2010-11, on the
back of higher growth forecasts for agriculture and services sector. The overall outlook
suggests that notwithstanding some recent moderation in headline inflation, the level of
inflation remains above the comfort level. The Reserve Bank’s policy stance is likely to
be shaped by dual goals of maintaining the growth momentum in an atmosphere of
global uncertainty, while striving to moderate inflation further

Will the Reserve Bank of India (RBI) raise policy rates for the sixth consecutive time this year to tame inflation? Wait for Tomorrow...looks like they are bit uncomfortable in controlling inflation

Emerging Market Economies Leading Global Growth...But for how long?

Over the weekend lot of discussion happened at IMF,Washington DC and below RBI governor's comments on Role of Emerging Economies Going Forward and Key Policy Challenges

Here he talks about the Role of Emerging markets played in pulling the global markets from near depression and how its going to make impact to the rest of world going forward.

I guess when the EM was at peak in 2007  and rest of developed countries at the start of downward direction i  remember few saying that EME are decoupling from the rest of developed economies and EM will go up..but what happened  after that...every one knows....and same set of people after the crash in 2008 said that EM are  recouping with the rest of the world....Now fast forward from there to 2010 the same set of people :) are again started to say that we are decoupling again from the rest of the world..as rest of world is still struggling from the wounds it got from the crash and are growing near 2 % to 3% when EME are going at near 8% to 9% .

So how is this happening ? Basically there is plenty of Liquidity across the developed nations which is sitting idle as there are very less opportunities in there regions for growth so a whole lot of money is being pumped to EME. Now Question is how much more can they pump into these economies? It depends if US going for another round of QE2 (probability of happening this is high...as there wounds are not healed enough...same with the case of EU....) then i strongly believe that EME are going to see huge inflows which are never seen or heard. At least in India FII inflow is going to touch 1 trillion for the first time..

Another question coming to my mind..What if due to a policy decision are another unknown reason if money starts flowing out of EME..what is going to happen? Ob..markets and economy as such will go in South direction.

But before that happening can our regulators or persons with power can make some decisions to arrest the flow if such kind of event happening in near future and RBI governor said this at IMF over weekend

Furthermore, in evaluating the level of reserves and the quantum of self insurance of a country, it is important to distinguish between countries whose reserves are a consequence of current account surpluses and countries with current account deficits whose reserves are a result of capital inflows in excess of their economy’s absorptive capacity.

India falls in the latter category. Our reserves comprise essentially borrowed resources, and we are therefore more vulnerable to sudden stops and reversals as compared with countries with current account surpluses

I doubt it...cause one reason might be RBI going soft under the pressure from Ruling parties and key allies  are going for elections in some states...

It would be interesting to watch the policy makers game on tacking inflation,BOP and Exchange rate  in coming days ...

Competitive Non Appreciation?

It has been two months since i last posted something on exchange rate stuff...but off late things are heating up across the Central Banks about related to currency.Almost all the developed economies are struggling to reduce the unemployment rate and trying hard to increase there GDP rate.

 They attribute much of current exchange rate stress is emergence of china and its willingness to peg Yuan to American dollar at a undervalued value. Which is giving unfair advantage to Chinese producers to export more out of china and making other countries suffer job loss and loss of export competitiveness 

 Here are the comments from Secretary of Treasury Timothy F. Geithner Remarks at the Brookings Institution

Two years ago, the world economy was in the grip of an economic crisis on a scale not seen since the Great Depression.The United States and its partners in other leading economies, in an unprecedented feat of peacetime economic cooperation, joined forces to launch a powerful, dramatic response.    

Together, we put in place a powerful program of financial support – classic fiscal measures of tax cuts and investment, combined with monetary policy actions by central banks, and a variety of creative actions to stabilize our financial systems – to bring the global economy out of freefall and on a path to growth. 

We mobilized hundreds of billions of dollars in financial support for and through the international financial institutions for investments in emerging and developing economies.We committed to keep markets open to trade and investment, and together we honored that commitment in the face of strong political pressure.

We passed sweeping reforms of the U.S. financial system, and the world's central banks and supervisors reached agreement just two weeks ago on a very tough set of global standards for capital to limit leverage in the major global financial institutions. 

He is talking about Basel III norms which got finalized some time back and here is the link of my previous post to understanding-basel-iii-accord

These decisions required considerable trust and political resolve.  And they have been effective in restarting economic growth and stabilizing financial markets.  Global trade is now almost back to pre-crisis levels.

Look at the Baltic Dry index over which tracks the movement of ships in Sea which is pseudo indicator for economic activity or trade happening and clearly its not up to the levels of pre-crisis 

Each of our economies is stronger today than would otherwise have been possible, because of the effectiveness of this joint strategy. And the financial reforms now underway will substantially reduce the risk of damage from future financial crises.

Financial reforms which they made are just delaying the crisis and passing it on to future. Reforms in fact made money into pockets of rich and as long as Global imbalances are there we can expect another crisis any time from now :)

The Growth Challenge

What are the main challenges ahead?

The most important policy question we confront together is how to strengthen the pace of growth and repair, and how to do so in a way that provides the basis for a more balanced and therefore more sustainable global economic recovery.

I guess he is talking about the employment growth which is not happening in US can be seen in the latest ADP report  which says The decline in private employment in September confirms a pause in the economic recovery already evident in other data. 

And that is what is worrying economists across the globe as they think this is period is growth led recovery with no improvement in unemployment. Which is very dangerous and crisis may be back with a bang if this continues  

This is not a challenge that is best resolved by nations acting independently.  In the heat of the crisis, we all recognized that our actions would be more powerful if we acted together.  Even though the most dangerous part of the crisis is behind us, we are still in a place where we can achieve better overall growth outcomes if we make policy in a cooperative framework.

 a few suggestions on the policy challenges ahead in three areas: growth, exchange rate cooperation, and reform of the architecture of economic cooperation.

First, on economic growth.  The IMF forecasts the world economy will grow at a respectable annual rate of around four percent in 2011.  Growth is very strong in many of the major emerging economies.  In the major advanced economies, however, output and employment are still substantially below the pre-crisis levels, and the pace of recovery has been slower, with economic growth now running at a pace that is close to potential growth rates and not rapid enough to repair quickly the substantial economic damage remaining from the crisis.

Economic recoveries that follow financial crises are typically slower than those that follow other types of recessions.  This is because of the headwinds to growth that are generated by the necessary adjustments in asset prices and in reducing financial leverage.  As financial institutions rebuild their balance sheets and households reduce debt and raise savings, spending is slower to recover.  Firms, cautious after being burned by the financial panic, are less willing to invest and to hire because of uncertainty about future strength in demand for their products.  

The greatest risk to the world economy today is that the largest economies underachieve on growth.  We need to continue providing well-targeted support for the recovery in the near term even as we put in place plans to help ensure fiscal sustainability over the longer term.

And for the recovery to be sustainable, there must also be a change in the pattern of global growth.  For too long, many countries oriented their economies toward producing for export rather than consuming at home, counting on the United States to import many more of their goods and services than they bought of ours.

From here on he started talking indirectly about China and other developing countries 

The United States will do its part to achieve this adjustment.  Private savings have increased significantly, and, as the recovery strengthens, we will bring down our fiscal deficits to a sustainable level.

But as America saves more, countries overly reliant on exports to us for their own growth will need to change their policies, or else global growth will slow and all of us will be worse off.  Countries that chronically run large surpluses need to undertake policies that will boost their domestic demand.

I guess he is specifically talking about Chinese policy of keeping Yuan undervaluation and there by giving added advantage of Chinese exporters. How can too much export oriented markers like china ,japan increase domestic demand? I only knew of one thing which is lower taxes and there by keeping more money in public pocket and asking them to spend . Other than that anything else? no idea for now

That brings me to the second policy challenge: we believe it is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange rate systems.  This is particularly important for those countries whose currencies are significantly undervalued.

Like China which is pegging its yuan to dollar at a fixed rate from 2004 and here is the previous post related to it  basket-band-and-crawl-(BBC)

This is a problem because when large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same.

Yes looks like when China can do this why cant i do (JAPAN). Japan recently made jump into the bandwagon of group which is depreciating there currencies there by giving advantage to there export oriented companies. This is one kind of protectionist measures which are illegal according to WTO conventios

This sets off a damaging dynamic, described first by my former colleague Ted Truman, as "competitive non appreciation." Over time, more and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies. The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports.

This is a multilateral problem.  It is unfair to countries that were already running more flexible regimes and let their currencies appreciate.  And it requires a cooperative approach to solve, because emerging economies individually will be less likely to move, unless they are confident other countries would move with them.

Japan acted on its own without a coordinated effort  into the currency market  for the first time in six years, buying dollars to weaken the surging yen  

This problem exposes once again the need for an effective multilateral mechanism to encourage economies running current account surpluses to abandon export-oriented policies, let their currencies appreciate, and strengthen domestic demand.  This is a necessary complement to the adjustments being undertaken by countries running current account deficits.  A cooperative re balancing of policy in this direction would be better for overall growth.

 An an attempt to fight off worsening deflation and prevent the economy from falling into another recession, the Bank of Japan (BoJ) announced its largest foray yet into the realm of quantitative easing (QE).

This issue was well-known to the group of economists who gathered in Bretton Woods, New Hampshire, to refashion the war-ravaged global financial system in 1944.  The Articles of Agreement of the IMF, drafted at that conference, contain a now-obscure paragraph calling on the Fund to issue reports on countries with "scarce currencies"--what today we would call countries running persistent surpluses--"setting forth the causes of the scarcity and containing recommendations designed to bring it to an end."  That clause now reads like a relic of a bygone monetary era.  But the problem it was drafted to address--the threat to global financial stability posed by persistent, large surpluses--is as salient today as it was then.

This brings me to a third issue on the international agenda, the reform of the architecture of economic cooperation.

The Framework, called the "Framework for Strong, Sustainable and Balanced Growth," was designed to create stronger incentives for rebalancing growth, as the world recovered from the crisis, with higher savings in countries like the United States, complemented by reforms to strengthen domestic demand in surplus countries like China, other emerging economies, Germany, and Japan.


We agreed to pursue these two paths in parallel.  Each involved a change in the rights and responsibilities of the major economies, both emerging and advanced.

We have moved aggressively to do our part to help bring the world out of crisis.  We are working very hard to repair our financial system, to fix what was broken, and to reduce the future risk of financial crises here at home.  We have seen a very significant increase in private savings by households.  Our external deficit has fallen sharply, and we are financing at home a much larger share of the fiscal deficits we inherited.

We still have a lot of challenges ahead of us to strengthen growth and to restore fiscal sustainability.  And we expect to work closely with Congress in the months ahead on how best to move forward.   

 Mr. Geithner said that “China will be less likely to move, to allow its currency to appreciate more rapidly, if it’s not confident that other countries will move with it.”

His warnings were echoed, in crucial respects, by the I.M.F., which released its latest World Economic Outlook on Wednesday.

sources:

http://www.morganstanley.com/views/gef/index.html

http://www.imf.org/external/pubs/ft/weo/2010/02/index.htm

http://www.underpaidgenius.com/

http://www.brookings.edu/

When is Next Financial Crisis ?

Now a days everyone is talking about when is next financial crisis going to come up and in it what form its going to come up ?. A school going kid asked her father Jamie Dimon Chief Executive Officer of  JPMorgan Chase & Co.  "what is financial crisis"? , with a smile he said that "its event which occurs once in 5 to 7 years" And he went to say the same thing to Financial Crisis Inquiry Commission .The point he is talking is we should be getting ready for another crisis anytime from now.

To Reduce the chance of happening another crisis is not to ban products which increase speculation but to make the products more transparent and allowed over regulatory body( like a exchange). Most of the products like OTC derivatives which are widely believed to be cause of crisis should be regulated and thereby reducing the risk.

At the same time they(economists,traders,investors) say a debt bomb and mother of all bubbles ..(Chinese Debt) is still raising and one small pin can burst it in coming days. From the vast amount of literature on web one can say that Chinese real estate prices  multiplied in past 2-3 years due to easy lending by Chinese banks and they cannot sustain to easy lending practices for very long time .
Here are couple of new items:
Pricking the bubble
Fitch warns China banks face big 'bubble risk'
economy-ponzi-debt-peking-china-bubble.html

The important thing over here is how much of its market is correlated with India in larger time frame. I believe we have a strong correlation with Chinese economy and also we might face the same problems in coming days. The exceptional growth we had in past few years is generated with debt(its kind of PONZHI Scheme which only government can run...borrow money to pay the bill ) and creating growth with debt is not all a bad idea.But for how many years we can stimulate the growth with this debt is the question.

And coming to shorter time frame Once the RBI starts increasing the interest rate to tackle inflation or removing stimulus ,it might lead to situation where it will become hard to sell houses by real estate companies or companies finding tougher to borrow money etc which in turn might lead to asset price fall which again has domino affects on banks balance sheet.

And if u look at my previous post of Chance of India Defaulting?  one can see that we might face huge redemption pressure in coming years. To repay the small amount in 2010 and to meet to the government funding gap for this year it already dis-invested a lot of companies and many more in line in this year. If they carry on like this am not sure how many of PSUs can remain with public in future and how our future generation will share the burden will be determined in coming days(years)  :)

basket, band and crawl (BBC)....Can China Maintain it

Just came across this acronym in web and was quite amazed at its usage in real world , am not sure of its usage in real time .John Williamson, a Washington-based UK economist credited with developing the BBC. This policy can give central banks the  flexibility to respond to changes in both local and global conditions to maintain export advantage and control inflation.

And here is how its related to present context :

Here is the Transcript from PBC on Renminbi(or Yuan --Chinese Currency) policy change which

led to rally in global markets across the world. I have been tracking this news for a couple of days though not clear at its consequences . Now why all of sudden Chinese changed there stance from pegging with  dollar to a flexible rate ( Though this flexibility will be debated in coming days across the board rooms )

Link for Change in Exchange Rate Policy on June 19th

In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.

There is a lot of pressure from US on China about exchange rate peg and how its creating  global imbalances and  us-may-label-chinacurrency-manipulator by June 20 if China doesn't take any steps ..and China did take a step on June 19th (Saturday evening or Sunday morning ) so as to avoid a report from US which was supposed to come in mid April got delayed to June 20 on labeling China as currency manipulator

Starting from July 21, 2005, China has moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Since then, the reform of the RMB exchange rate regime has been making steady progress, producing the anticipated results and playing a positive role.

 US is pressuring china to abandon the policy of pegging yuan to dollar and to go for a floating exchange rate BBC  looks like this has worked out and for time being it allowed a float rate with in a small band of 0.5% and if currency hits the boundaries then it might intervene in the markets .
This 0.5% band move is for a day  and the risk of currency fluctuations is very less and US may pressure to increase the Band...I guess this would take some time to implement as China bought some time from US by making changes to the policy and thereby not labeling it as currency manipulator for time being

When the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the U.S. dollar depreciated by varying margins. The stability of the RMB exchange rate has played an important role in mitigating the crisis´ impact, contributing significantly to Asian and global recovery, and demonstrating China´s efforts in promoting global rebalancing.

Pegging yuan to dollar for past 2 yrs led to unfair advantage to China and by increasing its share of exports which led to Global recovery.

China´s external trade is steadily becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010. With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist. The People´s Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.

Economists think China faces a potential challenge in introducing a managed float, since a small revaluation would continue to attract speculative foreign capital in anticipation of further currency appreciation. As a result, China may have to widen its currency trading band to gain market acceptance.

For a short term time period its a positive news to the market especially metals sector and Textile sector.
But i am afraid its just the cheap money flowing into the marker for now..and anytime the flow can be reversed

Spokesperson of the People´s Bank of China Answers Questions on Further Reforming the RMB Exchange Rate Regime

Chance of India Defaulting?

Everyone is talking about Greece default and Euro region problems..including naive like myself. But why there is less noise on India defaulting. One reason might be  India is pretty much safe ,thanx to RBI for restricting  FII to hold India's debt. Greece holds much of its debt in form of External Debt ,mean foreign banks used to fund its balance sheet and as its time to repay them back and unfortunately they don't have the resources to pay back..alternatives for Greece are going default..or restructure the debt and let the future generation face the sufferings.I guess the chance of happening later is more 

Now coming to India, we also have debt ,but majority in the form  internal debt. Government borrows money from market by issuing securities called G-secs (long term) T-bill (short term) and it will pay the lender at specified interest rate until the securities mature after which  it has to repay the money back.

RBI will do these kind of transactions,apart from this RBI also has tools like MSS to increase the liquidity in market by buying back the government bonds and decrease the liquidity by selling the bonds.Generally RBI has calendar in which it gives dates on selling government securities
Here is the link for this year RBI Calendar

So Where are we Standing on G-sec till now..how many outstanding securities does Indian government hold.
How much interest are we paying out?Here is picture which gives some understanding on Gsecs size and Maturity .Y Axis shows Gsecs amount in Crores and X-Axis shows Maturity Date

 The Larger the Bubble means the higher the security value which government borrowed and it needs to repay that amount at maturity . We see in 2010 and 2011 we have small bubbles mean government has to repay less  amount this year, They can do this by using new dated securities or selling government stock,increase taxes etc ..Problem is if they issue new securities say 2040 bond, then they have to pay the interest till then which is a burden and if they go for selling there stake in PSU's then they will miss out the dividend  and also face political pressure. Am not still not sure of which way to support coz issuing a new bond is like a ponzhi scheme and selling a stock is like killing golden goose

Till now we havent faced the real problem coz its a small repayment in 2010 an  2011, it expected good chunk from 3G revenue and sale of Govt Stock. But the real problems for govt starts when they to repay the amount in 2013,2014,2015. Larger bubbles start from then and real interest burden will start .And if they issue new securities to cover up them then interest burden will increase .See the below graph on Interest payment by government (budget estimates)

 See the rate at which Government is paying the interest ,there is a sudden spike around 2007-08 and 2008-09 which might  be attributed to government issuing more bonds for more spending on farmers loan waiver and pay commission.Slope got a bit horizontal for 2010-11 because government planned to issue less number of bonds and expected more revenue in from 3G and sale of stock..But 3G cannot happen always right,..so from where does the government gets revenue to fund the balance sheet apart from issuing new secs and increase the interest burden and if this burden continuous in coming years ..then i believe there will some be some turmoil in future ..hehe. :) It has another option...Printing Money, but where will it lead? Will cover up later..

What is the next BlackSwan?

What a wonderful month so far for markets a swing of near 6% downside in a week and a 4% upside in a day ,Credit goes to European Officials single handedly making the markets to dance according to there tune and also we yet to know the reasons for 1000 point swing of Dow Jones..rumors in market are mistake by iIbank in selling e-mini S&P worth 15Billion USD, large Europe bank liquidated its positions. and high frequency trading ..any way leave it...we will get to know more on it in few days..

So What exactly happened during the past week and weekend ? what made europe for the changes in there policy towards bailing out countries all the while opposing towards that idea. I guess this weekend will be recorded in history for sure. European Bank offered a trillion dollars package to weak countries?  Will this solve the current problem? From where will they bring 1T $ ? Print Money.if so..haha..LOL..that will have ripple effect in coming days for sure ..if not ..Why didn't they do this much earlier? when bonds were yielding much lesser..Now when they are higher they are buying them..pretty bad i guess ..its like buying at high price and selling at low price...If thats not the case..then Markets are doomed to come down again...for now europe went up..but still there are problems around euro..i dont think in a weekend all there problems are solved ..May be am wrong..will see..

So what next for markets..inch higher for now until we see another blacksawn. If there arent any events like that then by default we have the great driver of our ENGINE ...yep its China..Many are suspicous of China coz they dont reveal much data to the rest of world and we have to speculate a lot on its conditions..
I personally feel China is the ultimate culprit for making Metal Prices ,Oil to go up in 2008 coz of Olympics it conducted  which lead to massive cornering of metals...to build the stadiums,roads,infrastructure..and it drove Oil prices like anything coz it piled up huge reserves of Oil to use as backup fuel  in case of occurrence  of  Earth Quake. Once the event is over we had a oversupply of commodities,Oil and it crashed. Now again if  oil or metals to go up we need such a kind of demand...

So even without any real  demand metals going up..means expect a fall in near future which is already happening in China..Thats why am bit worried of China Throwing a Bomb on us..Have to be carefull in knowing the next BlackSwan timing

Steel Index

 I found this in bloomberg website which tracks steel companies in europe.

Brief description of this index :

The Bloomberg Europe Steel Index is a capitalization-weighted index of all companies involved in the steel sector of the Bloomberg Europe 500 Index. The index was developed with a base value of 100 as of December 31, 1996. The parent index is BE500. 

http://www.bloomberg.com/apps/cbuilder?ticker1=TPIRON%3AIND


Now what we can do is if this can give any clue to metal companies which are trading in india , hope i  will track this index with the steel sector in india and will publish in another post

Economy Double Dip

This i have taken from seeking alpha website. From it one can make a small guess where our economy can head in coming days

Budget Deficit and Greece Problem...issue 1

Though the world economy is coming on to tracks there is a possibility that it might get derailed because of budget deficit of many countries is increasing including india and if this continues until they make some measures to decrease the gap by increasing taxes , reducing public expenditure (it would be great if they reduce government running expenditure rather than on money they spend on people..but i guess they(politicians ) do the later..will see that in coming days) and making public sector companies more accountable to owners(public) ..Though i believe Govt should spend more in times of depression kind of times we are see now a days is once a life time chance..only history books will tell this in coming days..but Govt at some point of time should reduce this expenditure on public other wise there budgets will become deeper..so after reducing this they should be in quick position to collect the funds from market or else if another slump happens then they will be in very bad shape i guess...atleast they should have enough funds by another slump so thay they resume pumping liquidity back into system...

Now guess why am talking all these things now is coz of late am hearig news in western media about Greece having budget deficit of over 13% and more...and also they fudged statistics to enter in Euro Zone..and there is also talking going about Euro going down...that inturn will make Dollar also low at some point...this is indeed is sensed by Chineese i guess and they quietly did a a monetary tightening today ..which inturn is warning to normal investors to not to go for risky assests like equities..And this effect is seen in Dow going down by 1%..will see what our nifty will do on monday...

Domino Effect

Just got this into my mind ..--what are the effects of printing money by govt (they gave a nice word called stimulus) is going to show effects on common man...we can think of increase of purchase power which inturn lead to increase in price of items ..which inturn will make farmers or industries to supply that product to market there by stopping the production of item/crop which is giving less margin..which inturn will lead to demand-supply mismatch....which again will lead to price rice...but for this viscous circle is going move on

oops..i havent talked about Domino Effect right...no time now..will post it sooner
Thanks
Pradeep Reddy Lekkala

E-Voting rights

Here is a news item which gives voting rights to minority shareholders.



Shareholders of a company can now cast their vote electronically on company resolutions through an Internet-based e-voting platform. The e-voting platform for corporates was inaugurated by Mr Salman Khurshid, Minister for Corporate Affairs, at a function organised by the Bombay Stock Exchange (BSE) and Central Depository Services Ltd.

"It is a major step forward that would bring more transparency to the system," Mr Khurshid said, adding that he wished the same could happen in the election of political representatives as well.

Dont know how much it can protect minority investors

The e-voting platform has been developed by CDSL Ventures Ltd (CVL), a wholly-owned subsidiary of Central Depository Services Ltd (CDSL).

"The e-voting system will empower shareholders to participate in the decision-making process of companies in which they have invested, thus making their vote count," Mr S.S. Thakur, Chairman of CVL, said.

During the voting period investors can cast their vote by visiting the Web site ( www.evotingindia.com) and log on using their demat account number and permanent account number (PAN) and password.

how will be sending me the password? can that be changed ? Need to look it .

Companies would benefit from this system as the remote voting process would also result in savings on various cost overheads, which are currently incurred for postal ballot.

Thanks
Pradeep Reddy Lekkala

Boom Boom Gold

Whaooo ..just heard a rumor in market that RBI is going to buy gold once more..Reason they know that dollar is going to come down in near future and all there dollar denoted assets are going to come down, so inorder to hedge it they are buying the gold ,so that any increase in gold value should counter with dollar dropping .Question is how much Gold should RBI buy to counter the dollar free fall atleast for near term.

Will explain with facts in coming posts

understanding of dollar inflows

Here is a article which i took from economic times clearly explaining about the effects of dollar inflows


Its raining dollars in India. Such a dollar deluge can be quite harmful. Here is how. When a foreigner Joe invests $100 into the Sensex,

he first needs to convert his dollars to rupees. So, let's say the exchange rate is 47, which means 100 dollars becomes Rs 4,700.

After a couple of months the Sensex rises by 10 per cent (it's hot right now, and that's why Joe is putting his money ). The investment of Rs 4,700 becomes Rs 4700 + Rs 470 = Rs 5,170. At this point, dollars coming into the Indian economy have made the rupee stronger, so that the exchange rate is now 46 instead of 47.

So, when Joe decides to collect his winning investment, he gets Rs 5,170 divided by 46, which when calculated is $112.4. In short, he put in $100, and got back $112.4, even though the Sensex went up only by 10 per cent. This 2.4 per cent advantage is simply an added icing on the cake, not available to a desi (rupee) investor. The inward pressure of dollar investors also makes the Sensex go up dizzily. That makes Joe even happier.

He tells his friends. They all start investing here. Dollars pour in, and the inward pressure gets even more intense. It soon becomes a feeding frenzy . This Sensex is a "sure thing" say the foreign punters. You know how this ends, don't you? One fine day, with a small rumour , the tide turns abruptly. The bubble is pricked.

There is a stampede to get out. The financial world is known for such herd mentality and abrupt reversals. Once the investors rush out, this whole model starts going in reverse.

Meanwhile, the sufferers are the desi rupee investors. This indeed happened in September 2008, when the Sensex crashed, because the foreign institutional investors pulled out funds from India due to the Wall Street collapse. All that the desi investors could do was hold a morcha on Dalal Street. They did not know what hit them.

Of course, all this stock market investment is risky business. So, investors should heed caveat emptor (buyer beware). If they are taking risks, it's their funeral. Why should the government or the Reserve Bank intervene?
Under normal circumstances, the investors should be left alone with their risk-taking . However, it is difficult to say what 'normal circumstances' are. Since a trickle can become a deluge very quickly, normal can turn abnormal almost overnight. Hence, the policymakers need to keep a constant vigil on this incoming deluge of dollars.

The dollar dilemma is also faced by other developing countries. Recently, Brazil started tightening the screws on inflows of dollars, since their local currency strengthened rather quickly and unhealthily. Taiwan, Indonesia and South Korea too, have imposed some controls on dollar inflows.

The controls are not so much on stock market inflows, rather on the money that flows into debt markets and banks. Since dollar deposits earn close to zero per cent in fixed deposits in American banks, the Joes are tempted to put that money into an Indian bank into rupee deposits, which gives them 10 per cent. It's safer than the stock market. In addition, you get an additional 2.4 per cent due to rupee getting stronger, remember?

Of course it's much easier to do this in Korea or Taiwan, thanks to India's restrictive laws for foreign deposits.
As long as interest rates in America are low, and economic outlook remains uncertain or bleak, the dollars will tend to flow to emerging economies.


Those economies, like India, will need to put up some barricades, lest the dollar deluge destroys the edifice of the economy.

Of course, the dollar monsoon has not quite begun, yet it's better to keep our umbrellas ready.

Random Thoughts and Observations 1

We have seen an usual rally in Indian markets,usual in a way where its positively correlated with East Asian Indexes like shanghai and hongkong exchanges..after post lunch it generally align with European markets, But what is special today in today's rally is we were down by -.5% in morning and once Europe opened in Green with .5% upside , we went 1.2% Green all of sudden that mean around more than 100% in nifty in few min...and u know whats happening in Europe right now...its -0.6% down, seems the reason they gave is dollar index going up and Europe in negative...now it seems US is also joining them in RED, out of all world markets Indian markets closed in GREEN with huge upside ..(that's cool right)..but not me..me shorted on market this evening...keeping fingers crossed for now..


And coming to Dollar index..why is this getting all the limelight these days, reason is Dollar went down index 80 and still FED is not going to increase the rates and all the dollar value is going down
First Question why dollar going down? IF dollar goes down whom will it help? why Equities are going up..though i know that right now they are inversely correlated from 2000.., Why are they supposed to be inversely correlated? why is FED happy to keep dollar low? do they want to increase their asset value and clear the bad debts? and come clean again..am afraid this is the reason?


And one more questions came up to my mind..why obama visited China and i guess Singh is also going to US? any relation? Till now i couldn't find any..But will find out sooner

Holy Link of Stock Market

I Call the below Link as Holy cause it gives one a fair idea where markets is headed.
https://www.theice.com/productguide/ProductDetails.shtml?specId=194

When i say markets i mean whole global markets in which trade is done day to day in specified time hours.One important thing about this is ICE' Inter Continental Exchange" what a name... from past few days am following this link where it gives Dollar index which is traded in ICE which gives DOLLAR value in International Market

This Dollar Index is dictating the terms in Worlds financial Markets.At least this is what i believe for now

If you see the trend for the past 1 yr it gives a fair idea .You can see that it peaked in March-April..Remember at that time at least our INDEX (both SENSEX and NIFTY) are down..From then on if you see Its going down like anything .Reason i don't know as of now...What i think ...FED has printed a lot of money and distributed in market just like that .(very crude of saying..will tell you the exact phrase later on....) as Liquidity is increased dollar value becomes low as long as FED doesnt increase Rate its going be like that .

Now coming into Indian Markets, the run up in market is due to low interest Cash in Dollar
(infact its not low intrest its ZERO intrest dollar borrowed overseas is Coming into Indian Markets (you see emerging markets in news...this is nothing but countries like india and china ,austriala etc...) and thus creating a t Bubble in Equities and raising a bubble ,but till what point can this bubble raise , it can raise as long as that run up is supported by the fundamentals of the economy , it gave a decent IIP number for last month (Though i dont have much knowledge on IIP}.

Now the question is what will happen once Dollar starts climbing?

Am afraid i huge sell off is coming in near months


Watch This Space ffor More Updates

By a one who wants to become------

Intelligent Investor

Its not Raining Here

Generally Rain will dampen the spirits of joy only when it rains at wrong time...but by this time of the year in the southern India it should rain
But that's not the case this year . As u can see from the pic already we are running a 40 % deficit rainfall on a average if this is going to continue for next couple of weeks.

Then i guess output of the kharif crop which is major crop in year is going to decrease drastically , which will lead to scarcity of rice .
now its mroe dangerous because the states which supplies rice to stock pile
are facing the drought situation.

If that is the case then it will lead to shorting in supply side..which will lead into high pirces in coming days.
That implies it will lead to higher inflation which i suspect will act as a barrier to the growth