2. A snapshot of the World
Economy
• The United St es of America experienced a major
at
shake-out t
, echnically known as recession in t year
he
2008.
• The financial crisis was linked t reckless and
o
unsustainable lending pract ices resulting from the
deregulation and securit ion of real est
izat ate
mortgages in t Unit St es.
he ed at
• The rise in t quant y of bad debt lead t a liquidity
he it o
crunch.
• Significant decline in economic act y, 81 public
ivit
3. Survival of the fittest: India
• It was indeed the survival of the fittest, the Indian
economy emerged out as a real hero with only
minor bruises.
• Despite an unprecedented global recession, India
remained the second fastest growing economy in
the world.
• No recession for India
• India’s GDP grew by more than 6% throughout
this period
• Further, India also made a successful recovery
from 2009-11.
8. What is depreciation?
• Currency depreciation refers to a fall in value of one currency
with respect to another.
• More and more rupees are sold and dollars are brought-
Rupee Depreciation
So, if 1-1-2012---1 Re. =2 Sri Lankan rupees
1-6-2012---1 Re =1.5 Sri Lankan rupees
INR would have depreciated by 25 per cent.
Again if, today 1$ =45 Rs.
tomorrow 1$ =60 Rs.
INR would have depreciated by 33 per cent.
16. Implications for India
• Dent in t India’s merchandise t
he rade,
since the EU has been one of India's
important export destinations. India makes
nearly 30% of its exports to Europe.
• Default concerns of European nations has
resulted in loss of confidence in t Euro
he
and appreciat ion of dollar.
18. Reasons:
• Sovereign debt woes of EU
• The dollar accounts for 40% of global trade.
The demand for US dollar comes from
individuals and institutions that require
American currency to enter into a transaction.
• Individuals travelling abroad carry foreign
currency to transact abroad.
• Foreign Direct Investments (FDI)
• Foreign Institutional Investors (FII)
• Importers
21. How Does Rupee Fall Affect
Stock Markets ?????
Assume a Foreign Investor
Having $10,000 Comes to
Invest in Indian Stock
Markets!
Now He has to Convert his $
to Rs to invest in Indian
Stock Markets!
22. How Does Rupee Fall Affect
Stock Markets ?????
On 1-1-2011,
1$ = Rs.50
He Converts $10,000 to Rs.
1$ = Rs.50
Therefore,
10,000$ = Rs.5,00,000
23. How Does Rupee Fall Affect
Stock Markets ?????
He Decides to Buy Shares
of L&T which was trading at
Rs.1,000/-
For Rs.5,00,000/- he can
Buy 500 Shares of L&T.
(5,00,000/1000)
24. How Does Rupee Fall Affect
Stock Markets ?????
On 22-5-2012, Assume L&T
is trading at Rs.1050/-
He is happy as his shares
have gone up from
Rs.1,000/- to Rs.1,050/-
25. How Does Rupee Fall Affect
Stock Markets ?????
He Sells as his 500 Shares
of L&T at Rs.1,050 and
gets 500 x 1050 =
Rs.5,25,000/-
Now he Reconverts his Rs
to $
On 22-5-2012,
1$ = Rs.55.39/-
26. How Does Rupee Fall Affect
Stock Markets ?????
He Converts Rs.5,25,000 to
$.
1$ = Rs.55.39
Therefore,
Rs.5,25,000 = $.9,478.24
(5,25,000/55.39)
10,000$ Now worth only
9,478.24$
27. How Does Rupee Fall Affect
Stock Markets ?????
LOSS OF
521.76$
28. How Does Rupee Fall Affect
Stock Markets ?????
Imagine if
Share prices
have also come
down from
Rs.1,000/- To
Rs.900/- ?????
29. How Does Rupee Fall Affect
Stock Markets ?????
Then 500 Shares x
900Rs/Share
= Rs.4,50,000/-
Reconvert Rs to $
4,50,000/55.39
= $8,124.21
LOSS = $1,875.79
Loss of 18.76%
30. How Does Rupee Fall Affect
Stock Markets ?????
Fire in the Mountain
RUN RUN RUN
35. Manipulation?
• Because Indian Rupee is weak, government
has to provide
subsidy to Oil Companies
– Total oil Subsidy Bill = Rs. 1,50,000
crore
• This is money collected from honest
taxpayers.
41. Key policy reforms like
• Direct Tax Code (DTC)
• Goods and Service Tax (GST) have been in
the pipe line for years.
• A retrospective tax law (GAAR) has already
earned a lot of flak from the business
community.
• The government announced FDI in retail but
had to hold back amidst huge furore from
both opposition and allies.
This has further made investors sentiment
negative over the Indian economy.
44. • External Commercial Borrowings limit
has been lifted to $40 bn from $30 bn
earlier.
• The limit on foreign institutional
investment in government securities in
India has been enhanced by $5 bn.
• The RBI has decided to widen the non-
resident investor base in government
securities with a limit of $20 bn.
