Pankaj Jain pjain at teknatus dot com www.teknatus.com The Financial Crisis and India BarCamp Delhi October 11 th and 12th, 2008

Introduction to the Financial Crisis The worst crisis since the Great Depression Sub-Prime Mortgages Loans extended to people and business with less than stellar credit worthiness Value of assets dropping quickly leaving negative equity Credit Scare of loan losses spreads beyond sub-prime mortgages

The worst crisis since the Great Depression

Sub-Prime Mortgages

Loans extended to people and business with less than stellar credit worthiness

Value of assets dropping quickly leaving negative equity

Credit

Scare of loan losses spreads beyond sub-prime mortgages

Timeline Fed ignores pleas for investigating sub-prime lending – 2001 to 2004 HSBC's Mortgage chief resigns after losses hit $10.5 Billion – Feb. 2007 Bernanke says the housing sector "is a concern, but at this point we don't see it as being a broad financial concern or a major factor in assessing the course of the economy." - Feb. 2007

Fed ignores pleas for investigating sub-prime lending – 2001 to 2004

HSBC's Mortgage chief resigns after losses hit $10.5 Billion – Feb. 2007

Bernanke says the housing sector "is a concern, but at this point we don't see it as being a broad financial concern or a major factor in assessing the course of the economy." - Feb. 2007

Timeline UBS shuts sub-prime lending unit and GMAC announces huge mortgage related losses – May 2007 Countrywide Financial (largest US mortgage lender) avoids bankruptcy by taking $11.5 Billion loan Freddie Mac posts $2 Billion Loss – Nov. 2007

UBS shuts sub-prime lending unit and GMAC announces huge mortgage related losses – May 2007

Countrywide Financial (largest US mortgage lender) avoids bankruptcy by taking $11.5 Billion loan

Freddie Mac posts $2 Billion Loss – Nov. 2007

2008 Banks face losses of $900 Billion Jobs lost across the board across many industries Collapse of major Wall Street firms begins with Bear Stearns and continues thru to Lehman Brothers. Others? Global liquidity issues know no boundaries Credit? What's that? Oil and commodities go thru the roof and then crater

Banks face losses of $900 Billion

Jobs lost across the board across many industries

Collapse of major Wall Street firms begins with Bear Stearns and continues thru to Lehman Brothers. Others?

Global liquidity issues know no boundaries

Credit? What's that?

Oil and commodities go thru the roof and then crater

Some Stats $16 Billion outflow from India in 2008 Inflation at 12% $291 Billion – Indian FX reserves as of 03 Oct. IndianOil Corp costs to rise 70% to $45 Billion Industrial growth plummets to 1.3% in August Sensex down ~50% in 2008 Sensex up ~50% from 2004

$16 Billion outflow from India in 2008

Inflation at 12%

$291 Billion – Indian FX reserves as of 03 Oct.

IndianOil Corp costs to rise 70% to $45 Billion

Industrial growth plummets to 1.3% in August

Sensex down ~50% in 2008

Sensex up ~50% from 2004

Why Should I Care? Unprecedented growth from 2003 to 2007 Where did the growth come from? Credit! Foreign Investors (Wall St., Street firms, Hedge Funds, Banks, PE Funds, VC Funds) Increased buying power of consumers SENSEX goes from under 5,000 in early 2004 to a peak just above 21,000 in Jan. 2008 to 10,400 on Oct. 10th, 2008

Unprecedented growth from 2003 to 2007

Where did the growth come from?

Credit!

Foreign Investors (Wall St., Street firms, Hedge Funds, Banks, PE Funds, VC Funds)

Increased buying power of consumers

SENSEX goes from under 5,000 in early 2004 to a peak just above 21,000 in Jan. 2008 to 10,400 on Oct. 10th, 2008

Indian Real Estate 10x growth in metro real-estate prices in 5 years Flipping! Affordability for the average person? Can you get a (home|auto|personal) loan? Affordability for the more privileged person? Can you get a (home|auto|personal) loan? Standard Charter and Citibank Refuse Loans to RE Developers – 09 Oct. 2008

10x growth in metro real-estate prices in 5 years

Flipping!

Affordability for the average person?

Can you get a (home|auto|personal) loan?

Affordability for the more privileged person?

Can you get a (home|auto|personal) loan?

Standard Charter and Citibank Refuse Loans to RE Developers – 09 Oct. 2008

Retail Growth Big bets made on retail growth Malls! Malls! Malls! Who's buying at the malls? What's selling now? High End Luxury Items Where to make (conservative) bets now? Where to get Rs. for expansion? Are further expansions warranted with slow retail growth?

Big bets made on retail growth

Malls! Malls! Malls!

Who's buying at the malls?

What's selling now?

High End Luxury Items

Where to make (conservative) bets now?

Where to get Rs. for expansion?

Are further expansions warranted with slow retail growth?

Startup Funding Indian Investors are getting even more skittish VC game is a long-term play Can VCs continue to provide returns attractive to their investors Can investors wait for the next exit window? VCs are advising portfolio companies to come up with revenues quickly and be prepared for a major dry spell Many VCs will quit and move to angel funding

Indian Investors are getting even more skittish

VC game is a long-term play

Can VCs continue to provide returns attractive to their investors

Can investors wait for the next exit window?

VCs are advising portfolio companies to come up with revenues quickly and be prepared for a major dry spell

Many VCs will quit and move to angel funding

Discussion

(Re)Sources BusinessWeek, What will the crisis mean for venture capital? , Sarah Lacy, 09 Oct. 2008 http://bit.ly/3A43xX Yahoo Finance Charts and Historical data Meltdown 2008 , TerranceDC, Oct. 2008, http://bit.ly/4gRiwh Sequoia Capital Presentation to Portfolio Companies - http://bit.ly/16F8WK Google RBI Website Teknatus Blog http://www.teknatus.com/blog/pjain

BusinessWeek, What will the crisis mean for venture capital? , Sarah Lacy, 09 Oct. 2008 http://bit.ly/3A43xX

Yahoo Finance Charts and Historical data

Meltdown 2008 , TerranceDC, Oct. 2008, http://bit.ly/4gRiwh

Sequoia Capital Presentation to Portfolio Companies - http://bit.ly/16F8WK

Google

RBI Website

Teknatus Blog http://www.teknatus.com/blog/pjain