THE FINANCIAL CRISIS IN INDIA REDUX
BarCamp Delhi 28th Feb., 2009
P. Jain and D. Shenoy
Saturday, February 28, 2009

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
Saturday, February 28, 2009

FAMOUS LAST WORDS
• 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
Saturday, February 28, 2009

OCT 2008 - TODAY
• President Obama Elected and Sworn In
• Oil and commodities spin into freefall
• Indian inflation drops to under 4%
• Indian GDP growth slowing rapidly
• Over 500,000 Indians lose jobs
• US Unemployment at an all time high
• US New Home sales at an all time low
• UK, Europe, US all in a deep recession
Saturday, February 28, 2009

US STATS
• 14 banks have failed in the US in 2009 alone. Not counting last Friday
(Bank failure day)
• Real estate ventures have declared bankruptcy, including a Donald
Trump Casino firm (so don’t bother buying his book)
• US home prices down 25-45% with no buying is in sight
• And this is at mortgage rates of 4.5%
• Sales were at all time low (since 1960s) in Jan 09
• Home inventory = 24 months of supply
• Measured by current sales volume
• Not counting some withheld foreclosures etc.
Saturday, February 28, 2009

SOME INDIAN STATS
• $16 Billion outflow from India in 2008
• Inflation at almost 13%, now at below 4% - WHY????
• Indian Deficit grows to 6%
• Nearly 75% of all Indian Gov’t borrowing is used to pay for expenses
• Sensex down ~50% in 2008
• Sensex up ~50% from 2004
Saturday, February 28, 2009

MORE STATS
• GDP growth slowing – 5.3% in the quarter ending Dec. 2008
• Manufacturing dropping dramatically
• Job losses are serious
• 1.5 million jobs to be lost just in the export sector from October 08-
March 09
• 200,000 jobs lost in Surat, 500,000 in the diamond industry in the
Q3
• 93% of our workforce has no social security coverage
• 75K jobs at risk in the auto ancillary units
• And the loads of downward salary revisions, “variable” pay etc.
Saturday, February 28, 2009

WHY SHOULD I CARE?
• SENSEX goes from under 5,000 in early 2004 to a peak just above
21,000 in Jan. 2008 to 8,441 on Nov. 20th, 2008 and 88432 on Feb.
20th, 2009
• Large firms are laying people off, slowing hiring, and decreasing
spending
• Many expats are being recalled home
• INR hits an all time low against the US Dollar
• Gold is skyrocketing
Saturday, February 28, 2009

INDIA
• At least one bank or real estate player likely to fail, a big one
• Credit card defaults, Home loan defaults and other commercial NPAs
are just getting started
• Fiscal situation is tight
• While there are good solutions, political bias will be towards populist
measures, no reward
• Like DA raise by 22% for govt. employees
• We have no data collection standards, lack of transparency delays
recovery
Saturday, February 28, 2009

DEFLATION
Chart by @deepakshenoy
Saturday, February 28, 2009

WHY IS DEFLATION A
PROBLEM?
• We’ve never dealt with it since the 1930s and we don’t know how to
handle it
• Interest rate cuts don’t work very well in the absence of a robust
bond market
• You can’t cut interest rates below zero (See the US and Japan)
• USD/INR + Crude/Other prices not controllable
• Price drops take MUCH longer to reflect effectively than rises
Saturday, February 28, 2009

IIP STATISTICS
Chart by @deepakshenoy
Saturday, February 28, 2009

INDIAN REAL ESTATE
• Flippingis dead (or it should be)!
• Affordability for the average person?
• Affordability for the more privileged person?
• Standard Charter and Citibank Refuse Loans to RE Developers – 09
Oct. 2008
• Real Estate oversupply is obvious in Gurgaon, but quite as bad in
Bangalore, Hyderabad, Mumbai, Chennai
• South Delhi is still relatively more expensive than London, Tokyo, Hong
Kong, and Manhattan – WHY?!??!?!?!?!?
Saturday, February 28, 2009

RETAIL SLUMP
Saturday, February 28, 2009

STARTUP FUNDING -
FUHGEDDABOUDIT
• 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?
• Indian VCs never looked at early stage cos. in good times.
• 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 – realistically, they will
try to fund growth only
Saturday, February 28, 2009

STARTUP FUNDING
• Callyour parents, siblings, cousins, uncles, aunts, friends, enemies!
• Get a tin cup and hit the most lucrative corner before someone else
does
• Bootstrap if you have the ability to get a client
Saturday, February 28, 2009

WHAT’S NEXT
• We’re not even close to the end of the meltdown
• We’re not even in the middle of it
• There is tremendous amount of denial on the street
• Saal-tak aa jaayega wapas
• Our banks are safe
• We don’t have subprime lending
• Real estate prices always go up, Stock market is great in the long
term
• This is all a load of bull (and far from a Bull Run)
Saturday, February 28, 2009

BRACING FOR IMPACT
• Bailouts cause moral hazard.
• Government revenues dwindle, tax rates will increase
• Expect a black-money-amnesty scheme
• Keep that job, look for one, or Start a business and create jobs.
• Accept that with deflation your salary will not increase, or you
revenues will not increase – it may even decrease!
• Stay away from get-rich-quick schemes, as frauds roam the streets in a
recession
• Stay safe. Umemployment breeds violence, hatred, and “moral police”.
Learn to defend yourself.
Saturday, February 28, 2009

LIGHT AT THE END OF THE
TUNNEL
• There is always some opportunity
• There is always some money to be made, even in a downturn
• Ex. Short selling stocks, Food, Essentials, Alcohol, Entertainment
• There is no money in the Internet in India. Give it up! There is money offline, though,
lots of it.
• Some of the rural public didn’t know there was a boom on. For them it’s always a
recession.
• Some of the urban public don’t know there’s a recession. For them it’s always a
boom – wake up and smell the coffee!
Saturday, February 28, 2009

DISCUSSION
Saturday, February 28, 2009

(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
Saturday, February 28, 2009

(RE)SOURCES CONT’D
• http://bit.ly/5IkPt - Duvvuri Subbarao, RBI Governor
• Title
Picture Under CC License by Wen-Yan King - http://
www.flickr.com/photos/medapt/407745883/
Saturday, February 28, 2009

THANKS!
Deepak Shenoy
http://blog.investraction.com
Email: deepakshenoy at g mail dot com
Twitter: @deepakshenoy
Pankaj Jain
http://blog.linosx.com
Email: pjain at teknatus dot com
Twitter: @pjain
Saturday, February 28, 2009