Monday, November 23, 2009
Saturday, November 21, 2009
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.
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.
Friday, November 20, 2009
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
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
Wednesday, November 18, 2009
Tasks to be Done :
I am looking for Historical Data related to FII Inflows ,Outflows and also Dollar index which is traded at ICE, if possible if i can get Dollar vs rupee historical Data also, then hope it would present some understanding . Hope that i will collect all these information and present it in coming days
hope i get some information from SEBI Database or RBI Database
Thanks
Pradeep Reddy Lekkala
hope i get some information from SEBI Database or RBI Database
Thanks
Pradeep Reddy Lekkala
Friday, November 13, 2009
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
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
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