Forex Dilemma 8

Read this.

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Rising rupee pushes down inflation
GAYATRI NAYAK

TIMES NEWS NETWORK[ THURSDAY, MARCH 29, 2007 02:50:28 AM]
MUMBAI: A STRONG rupee might hurt exporters, but there are many advantages for the economy. By letting the rupee appreciate, RBI is indirectly controlling inflation by simultaneously managing liquidity and addressing overheating of the economy to a certain extent.

The value of the rupee touched a seven-year high at the close of Wednesday trading to 43.05 per dollar. In the last one week, the rupee has recorded one of the fastest gains against the US dollar. This, according to treasury officials, is largely because the central bank has refrained from purchasing dollar inflows. Thus, in the process, it also curtailed liquidity growth that helps curb demand-side inflation.

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Rupee appreciation to hit software cos
MINI JOSEPH TEJASWI

TIMES NEWS NETWORK[ THURSDAY, MARCH 29, 2007 12:30:55 AM]

BANGALORE: With the rupee appreciating over the last couple of days and touching a seven-year high against the dollar on Wednesday, the brows in software companies are getting deeper.

A strong rupee is expected to affect the fourth quarter results of these companies adversely. Analysts expect software firms to report 1-2% lower operating margins on account of strong rupee.

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Dollar buying by banks see Re drop to 43.43/$

Press Trust of India / Mumbai March 29, 2007
Business Standard.

Arresting the three-day strong rally, the rupee today slipped to 43.40/43 per dollar in late morning trades on fairly good buying by banks - suspected to be on behalf of the central bank.

The rupee had climbed to its highest level in more than eight years yesterday following a strong 69 paise surge in the last three sessions due to heavy dollar sales by banks that are facing acute liquidity crunch.

The Reserve Bank of India, which was suspected to have intervened after the rupee neared the 43 per dollar level yesterday, seemed to be active to check the rupee's sharp rise against the dollar, a forex dealer said.

Oil companies, too, were believed to be making month-end dollar purchases as the global crude oil soared to around $64 per barrel.
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.....and now.

The positive side of the appreciating rupee is clearly evident by the many news reports. The rate of inflation is falling. The cost of oil imports are bound to come down in spite of the fact the cost of oil is touching USD 64 per barrel. We will be spending less now than when the oil was at USD 58 per barrel., because of the appreciation. The Fundamental characteristics of Indian export and imports is our imports are largely physical like Oil, Gold, Diamonds and other goods. Our exports are both physical and service exports. Service exports have outgrown the physical exports and continues to grow. The costs of physical exports are also import based. Service exports are largely human resource based than can always be controlled. Export billing should shift to Euro where ever possible. Therefore an appreciating rupee will always be good for India for both the short and long term. RBI intervention now will be like killing the golden goose.

We will also see heavy remittance from NRIs, PIOs and those Indians who have parked funds in USD. This will accelerate the appreciation of the rupee. If the margins of software companies are "under pressure" either bargain for better prices or give a "decrement" ( I do not know whether such a word exits) to the employees. The Housing and real estate market in the upper segment will cool down. The car sales in the 5 lakhs plus category would decline. Some sense in the labour market would prevail after a long time. Indians and Indian companies investing or buying business overseas will be benefited. Foreign travel will become cheaper. This is especially good for business travellers looking to expand their business.

Indian Rupee will be accepted in more countries world wide than it is today. We will also see many countries building Indian Rupee reserves.

Personal Savings - the back bone of the Indian banking system will continue to grow. We could see a reversal of trend of personal borrowings in the form of credit cards, personal loans, car loans etc to that of savings and investments. Indian Govt was borrowing from World Bank, IMF, ADB etc because of the need for forex and not because there was dearth of savings. This borrowing can be eliminated and stopped. Govt can tap domestic savings by issuing bonds in the market.


Dhakshina Moorthy, K.M.

Forex Dilemma 7

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Rupee at multi-year high.
PTI[ WEDNESDAY, MARCH 28, 2007 11:40:19 AM]

MUMBAI: The rupee continued to surge against the US currency and touched a multi-year high of 43.1525/1600 a dollar in late morning deals following sustained dollar sales by banks coupled with good capital inflows.

The rupee's surge also was accentuated by the absence of the Reserve Bank of India (RBI), which is expected to check the local currency's rally, a Forex dealer commented.

The central bank is extremely cautious and according to analysts, is wary of making dollar purchases aggressively in the current situation as it could have negative impact on money supply and inflation -- currently at high levels.

Traders feel the rupee is close to touching 43 levels as the cash crunch is likely to remain for some time.

...and now

At last the laws of nature is taking over. Forex reserves have crossed USD 190 Billion. It is like a pressure cooker releasing its safety valve on its own. RBI cannot always intervene. It need not, at least with the present reserve levels. Rs 40 for 1 USD on 1st June 2007 will not surprise me.

Dhakshina Moorthy, K.M.

Forex Dilemma 6

Read this.

Forex reserves up at $194.634 Billion on March 2
REUTERS[ FRIDAY, MARCH 09, 2007 06:00:00 PM]

MUMBAI: The country’s foreign exchange reserves rose to a record $194.634 billion on March 2, from $193.124 billion a week earlier, the Reserve Bank of India (RBI) said in its weekly statistical supplement on Friday.

Analysts attributed part of the increase in the reserves to the central bank's aggressive dollar purchases to protect the rupee's export-competitiveness against other currencies.

The central bank said foreign currency assets expressed in U.S. dollar terms included the effect of appreciation or depreciation of other currencies held in its reserves such as the Euro, pound sterling and yen.

The foreign exchange reserves include India's Reserve Tranche Position in the International Monetary Fund, the central bank said.

...and this.

Buy Indian currency, says HSBC
REUTERS[ MONDAY, MARCH 12, 2007 02:10:21 PM]

MUMBAI: HSBC has recommended to buy the Indian rupee as a jump in foreign direct investment (FDI) in recent months has calmed concerns of funding the country's widening trade deficit. The rupee could rise to 43 per dollar by the end of 2007, a level it hasn't tested since late-July 2005, the London-based investment bank said in a note to clients on Friday.

The rupee was trading at 44.24 to the dollar on Monday.

HSBC said India's central bank, which often intervenes to rein in the rupee to ensure exports are not hurt by a stronger currency, may be forced to let the unit gain.

"It is difficult for a central bank to resist currency strength and also face an overwhelming case for tighter monetary policy," it said.

HSBC also said the rupee was not vulnerable to equity outflows as a recent stock market correction showed.

"Indian rupee is not as highly leveraged to the equity market as the consensus believes. During the recent period, the rupee depreciated by just 1.1 per cent and emerged again as one of the best performing emerging market currencies," it said.

...and now ,

What is Dr Manmohan Singh and team are going to do with USD 195 Billion forex reserve when even USD 40 Billion should be more than sufficient for the next 12 months.

Dhakshina Moorthy, K.M.

Forex Dilemma 5.

Mr P Chidambaram and his team are fighting the effects of Forex Pile up and not the core problem of unnecessary forex buildup at the cost of supporting US Dollar : Rupee pricing. A major surgery has been due for more than 3 years.

Some of the piece meal measures done by Mr PC and team.
1. Govt cuts petrol, diesel prices to curb inflation.
PTI[ THURSDAY, FEBRUARY 15, 2007 02:00:50 PM]
2. Inflation touches a record level of 6.73%
PTI[ THURSDAY, FEBRUARY 15, 2007 02:00:10 PM]
The items seeing huge price rises are numerous as also double and triple digit increases.
It is futile to list them all here.

In his article in " Business standard " Mr A V Rajwade: Worry about the rupee
New Delhi February 12, 2007, he has the following to say.
"Exchange rates may have a bigger impact than interest rates.
There are three important measures of the value of domestic money:
# The inflation rate, which determines the domestic value or purchasing power;
# The interest rate, or time value of money, which measures what savers get or borrowers pay; and
# The exchange rate, which measures the external value of the currency."

Rupee has depreciated from Rs 51 to Rs 59 against the Euro and similar against the UK Pound Sterling. More than 15 % depreciation in two years.

If the Rupee were to be stabilised against the Euro then the USD rate should have been Rs 37.40 . By suppressing the value of the Rupee artificially, by continuously buying USD in the market, when you already have in abundance the import cost of fuel has been increased unnecessarily thereby leading to spiralling inflation. We could have witnessed ZERO inflation for 2 years which is very good for the people, promoting savings, avoiding wasteful expenditure etc. More so, when we have been witnessing steady increase in the interest rates on borrowing from banks Mr PC and team have lent USD 170 billion on zero interest terms by holding their currency as reserves. Holding for import bills is different from amassing mindlessly. Indian citizens are suffering for the foolhardiness of the rulers. USD currency is not even backed by Gold, but only IOUs. It is like issuing cheques without adequate balance in the account - in common man parlance.

Mr PC and team should do the following immediately., at least now.

[1] STOP purchasing USD currency in the markets for the next 3 months., plain speak stop intervention.
[2] Notify that all exports to countries other than USA should be in Euros and UK Pound sterling.

We can expect some good news.

Dhakshina Moorthy, K.M.

A letter to Thiru S Gurumurthy.

I had read your recent articles in the New Indian Express on the petrol price & on rupee valuation.

I fully agree with you. The thought on the appreciation of rupee against the dollar and other currencies has been lingering in my mind for several years. I have started blogging on this subject from 22/10/2005.


A series of blog on the subject : 22/10/2005. Forex Dilemma!! to 01/06/2006 Forex Dilemma 4 is available at http://moorthykmd.blogspot.com

India has always been looked at by the entire world for its intellectual and original thinking capabilities. Here we find that the rulers and policy makers are merely copying what the west and east are trying to do. India is unique in many ways and the western or eastern models are unlikely to work. Policies and methods need to designed with the situation in India.

Merely following the models of other weak nations in depreciating our currency does not work. The whole nation is suffering today because of the lack of vision and wisdom to see the welfare of the citizens.

Prices of Gold, metal like copper and aluminium, petroleum, real estate, stocks, etc etc are going up basically because the policy makers have failed to utilise the forex of 140 billion dollars.

We will continue to attract more outsourcing in menial work and body shopping than any respectable software development and exports. Today a employee in a bpo with bare minimum experience draws a salary of Rs 7,000 but that's what even managers carrying huge responsiblites in many small scale industries get. The cost equations are different. The ssi or sme has to work on rupee costing basically to cater to the pericing for indian consumer and indian taxation whereas the bpo is working on dollar revenues @ 46 times the rupee with ZERO tax. The contribution by the manager working for the sme is much more than what a bpo employee contributes. The intellectual capabilites are also different. The bpo employee would not get to even a fifth if he were to work in a sme. It is unlikely that he gets employed first. Most of the bpo employees are unemployable in other industries or businesses.

Todays unrealistic rise in real estate prices both for commercial and housing are as a result of Dollar investment in IT office space and non indian pay packets of the employees of IT companies.
People in Bangalore would be able to explain better. They are the worst sufferers. The rise in commercial space prices have made owning them by indian companies a dream. The rise in the housing space prices have resulted that only people with non indian salaries and income can afford with the support of large housing loans. An average indian can not even afford to dream of owning a flat or a house in the city.

Today in the farm sector near the cities, there are no farm hands to work even at high wages rendering farming activity loss making. More industrial estates are developed to the fancy of the foreign investor. Industrial estates should rather be developed to utilise waste lands and not by converting agricultural lands. You are reducing the agricultural land area of the nation gradually. You can build factories and buildings on any land but you cannot cultivate rice and wheat on any land.



Today's rulers and policy makers are neglecting the interests of 99.9 % of the population but are only keen on doling favours to the 0.01 % . They are yet to get freedom in their mindset. Naxalite menace, terrorism, suicide by farmers, under development of some regions etc are some of the results of the inappropriate policies. Immediate changes are essential. We the people are being punished for electing people not suitable for the offices they hold.

Dhakshina Moothy, K.M.

Laughing STOCK

When the BSE Sensex crashed and hit the index trigger, Our FM had advised the investors to stay in the market and continue to invest. That India growth is strong and nothing can happen in the downward way.

Last week he mentioned that the sensex is behaving (read sliding ) in line with the international markets.

What happens to those who had listened and taken his advice. They would have lost all that they would have earned in their life. They would have turned laughing Stock before their family and society.

FM's behaviour has been most irresponsible. It would be better for him to show restraint in his remarks to the media on financial matters concerning the nation. If he has taken credit for the rise of the index, will he resign taking resposnibility for the fall. He is trying to please whom?



Dhakshina Moorthy,K.M.

Forex Dilemma 4

The Rupee plunged to Rs 46.00 to USD 1.00


With USD 140 Billion in reserves it is shame that the rupee is not appreciating.


We are funding the US economy, its current account deficit with interest free, tenure free, liability free, committment free money while we borrow at 6 to 10% rate of interest. India cannot afford this charity. We ourselves are starving paying high interest. Interest rates have gone up by atlest 1.5 % during the last 6 months.



The mandarins of the north block should atleast wakeup now and intervene in the forex markets using RBI to bring the Rupee value to atleat to Rs 35.00 to a USD.



Dhakshina Moorthy, K.M.

Rise and fall of BSE Sensex

People were overjoyed when the Bombay Stock exchange sensitive index of top companies listed or the SENSEX was climbing from 6000 points to 12000 points. There was dizzy activity. Every body were crediting the rise from finance minister to the stray dog that was littering on the dalal street pavement. Everybody was "factoring" the growth of India in the "valuations" giving rise to the sensex. Well!! Valuations are simply notional and are unreal. They are irrational and eccentric thought process than any application of scientific thinking. They are like a gambler's instinct. I merely see them as INFLATION. Our Finance minister states that inflation has been contained under 5%. But the index has inflated by 100%. Assets haven't doubled, profits have not multiplied - then where is the need for doubling or trebling of share values. Ridiculous. Now the finance minister has turned investment advisor to the citizens to continue investing in the stock market. He has nothing to lose. But the Citizens have already lost in crores.

Dhakshina Moorthy, K.M.

Role of an Independent Director.

An Independent Director by virtue of his independence shall add value to the company by his contribution in terms of Good governance in complying with statutory regualtions, provide leadership for the company in the growth , inclucate and review ethical business practices and thinking, be responsible to the environment and society, and to uphold the interest of the shareholders.

Dhakshina Moorthy, K M

Microsoft Fraud on India.

Europe :- Microsoft was fined $612 million and ordered to come up with a version of Windows that doesn't include its media player under a penalty in Europe for monopolist trade practices.


USA :- Microsoft Pays IBM $775 Million to Settle Antitrust Claims. This is for the discriminatory pricing and overcharge claims that were highlighted in the findings in the U.S. antitrust case.


South Korea :- South Korea's antitrust watchdog fined Microsoft Corp. $32 million for alleged unfair business practices and ordered it to take corrective measures such as separating certain software from Windows and selling the software of competitors along with it.
"The Korea Fair Trade Commission found such tying practices liable because they constitute abuse of market dominant position and unfair trade practices under monopoly regulations and the Fair Trade Act," Kang Chul-kyu, the commission's chairman, told reporters.


World over Microsoft has been abusing its size and power to commit fraud (read : Unfair trade practice as mentioned) in its business. They undertake to seek as many new possible ways and means of conducting unethical business. The world over nations have declared Microsoft as bad business company.

Today, 08/12/2005 we see Bill Gates shaking hands with Indian Ministers and declaring USD 1.7 Billion investment in India during the next 4 years including some bit of donations to health programs. Lot of Applause from both the rulers and the media glorifying his action.

Little do they realise, that the said investment is by way of his own software including Operating systems, office suites, and others that don't cost anything to make a million copies. The so called investment is only notional and does not incur any real expenditure but for the copying charges.

Secondly Gates has fully understood the cheap source of manpower for writing his programmes is only from India in the future. He is planning to educate indians so that they will be useful to his company later. So Selfish as that.

More to come.

Dhakshina Moorthy, K M

Why buy SBI shares in the market instead of ICICI Bank public issue.

[1] As on Sept 2005 , the price to earning ratio or PE for State Bank of India's share is 9.80 and that of ICICI Bank is 18.20

The ICICI share market price is almost twice that of what it should have been compared to SBI earnings on earnings. The price should have been around Rs 290 per share and not Rs 544 per share trading now or the public issue price band of 505 - 550.

[2] The Price to book value ratio or PBV for SBI is 1.80 where as it is 2.90 for ICICI Bank. It is almost 40% overheated than SBI. The Share price should have been around 340 and not the dizzy 544.
It makes more sense to buy SBI shares even at the present levels of 910 per share than to buy ICICI public issue.

[3] What more , it is understood that some senior managers of ICICI Bank had even offloaded their holding even months before the public issue.

ICICI public issue could be a scam coverup.

Dhakshina Moorthy, K M

What ICICI Bank is trying to do?

ICICI Bank's Public issue opened today 01/12/2005. There were applications only for 43% of the total value. Other issues recently completed book building with in couple of hours of their opening . Classic example being ONGC issue. ICICI is trading at Rs 540 today. The offer is 505 to 550. There is hardly any scope for any gain on opening up of new shares for sale. You can as well pick shares in the market at Rs 10 less . No bothering of any allotment or not. You get confirmed stock. This may well turn out to be a big bouncer in the market in a few weeks time. There is no incentive to apply for the public issue. Ridiculous. I will not be surprised if the prices slide to 400 levels in a years time.

By the way what is ICICI going to do with these funds. Just to bring in Tier I capital - to fulfill capital adequacy norms of RBI. Nothing more. Targeting to grow like State Bank of India is foolish. SBI took more than a century to what it is today. Its strengths are totally different. ICICI can never match SBI even after a 100 years.

Forex Dilemma - 3.

Today 01/12/2005, The aluminium prices have been increased by about Rs 6000 per tonne. Reason - to par with the global prices of aluminium. This will not affect the international buyer as he buys in US Dollar. But the effect is on the indian customer who has to shell out more because the USD is appreciating against the rupee. The prices of zinc, along with gold and silver have followed suit. The prices of metals and others are increasing not because of local cost influences but because of appreciating USD. Inflation is growing rapidly because of the increases. There is deafening silence among the authorities to control the depreciation of the rupee.

Forex Dilemma - 2

On Tuesday 25/10/2005 the RBI Governor stated that the Oil prices were putting pressure on prices and inflation is rising above 5%. Gold , Diesel are the major items in the inflation index of RBI. It is no surprise. The only way is in the rising of the Rupee. The inflation also could come down dramatically.

Forex Dilemma!!

Forex Dilemma!!
As I go on record today, 22/10/2005 - India's forex reserves have crossed well over USD 143 Billion. Yet Indian Rupee is weakening against the US Dollar and hit a low of Rs 45.15 to one USD recently.

What's happening?
Why are those handling the Forex - Finance Ministry, RBI etc are keeping quiet?

It is a loss to the nation and its people. On one side you are funding the US with interest free dollar ( to the level of dollar reserves - guess USD 100 Billion) by way of holding reserves and on the other side you continue to borrow and or service interest for borrowings from the World Bank / IMF etc at rates as high as 7 percent. All this money by way of interest
is out of sheer hard work of the citizens of India. We are gifting the fruits of our labour to some nation who wants to bully India at every available opportunity. Be it Nuclear programme, Pakistan, Space programme , embargo on imports from India etc etc.

What use are so much Forex reserves when you can't utilise it and benefit India?
Dump as much forex in the market as required so as to buy a USD at Rs 35. You will see lots of people making big noises that our exports will be uncompetitive etc etc. I DISAGREE. Indian exports are largely import based. ie. Most exports are by way of value addition on imported raw materials and intermediatries. We have a huge import bill for OIL. To reduce the burden of
imports either we reduce the quantity of imports or value of imports. Quantity reduction is ruled out as of now. Value reduction is possible. Once the Rupee appreciates the import bill drops to that extent.Cheaper import means competitive exports leading to more exports in terms of volume and value terms in the future.

Dhakshina Moorthy, K.M.
22/10/2005.

Starting today 16/10/2005

I have started my posting today.

Dhakshina Moorthy, K.M.

about me
http://chennai.sancharnet.in/dax