While everything that is going wrong with the Indian markets can't be attributed to the US, most of it I think can be. Cutting across to the job market, things are gloomy. There is no Lehman to recruit us, Citibank is laying off and home-grown companies are battling for survival themselves. Quoting Chinmay, "I hope next year when we are passing out, the economy gets so bad that we are forced to start our own companies, that way we'll see a turnaround". Well, this recession might be a blessing in disguise for entrepreneurs.
Inspite of the being at the epicentre of the epicentre for all the worldly troubles, the US currency seems to give the Indian rupee a run for its money. The fact that the US economy does not have enough liquidity to pump into the market is giving rise to an illusionary strength to the dollar. The dollar seems to have gained strength in comparison to most other currencies. The Indian rupee was trading at less than 40 about eight months back and look at it now - up almost 25 % to about 50. I checked up Google finance to see the trend and it seems the dollar is 'gaining strength' pretty rapidly. Post September 15 (when Lehman filed for bankruptcy and the global crisis was recognised by the common man on the streets), the growth is unabashed.
It can be explained by the simple concept of Supply and Demand. Since there is a liquidity crunch in the US and the banks and companies alike need a lot of dollars to honour their commitments, they are taking all the dollars from elsewhere in the world. In essence, there is a shortage of supply in the other countries as the companies are selling the native currency in return for dollars.In India, although we have a liquidity crunch ourselves, in the supply-demand dynamics of the rupee and the dollar, the rupee loses out because the world needs more dollars than rupees. And what with the RBI reducing the CRR (which is the fraction of the cash deposits that the banks have to keep with the RBI), rupee-crunch has been addressed to an extent. So, the dollar strength is not because of the weakness of the rupee or the Indian economy, it is due to the sheer amount of 'recoverable' dollars present in the Indian markets and the evident lack of it in the US markets.
4 comments:
Zeitgeist 2 dekha kya ?? the fractional banking system is fraud yaar !!!
Just to add -- and I quote a report I read last week. Companies started at the height of depression have a higher statistical chance of succeeding when compared to those started at the height of a boom. (among contract manufacturers)
yeh gyaan kiske liye bhai.. vaise you are right.
Since, there is liquidity crunch in the US, the banks have taken out money from all other countries and invested in the treasury bonds. This has resulted in the appreciation of the USD. On the other hand, the amount of investment of other countries in the US is minimal, and hence the vice versa doesnt hold.
@ C-Lay,
Zeitgeist dekhi toh nahi, but I know what you mean - the funda of being able to lend a lot lot more than what you actually have?
@ Amrut, Ya, it seems to be an entrepreneur's haven, from what I understand.
@ Pico,
Gyaan gen yaar - main khud samajhna chahta tha ki whats happening, so thought ki if I have to write about it, I'd have to understand it properly. :-)
And ya, your explanation is a 'sood' way of explaining things - can see the IIMB and the MS effect rubbing off.. he he.
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