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The Financial Crisis and
             India
             BarCamp Delhi October 11th-12th, 2008

Sunday, March 31, 13
Intro 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


Sunday, March 31, 13
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



Sunday, March 31, 13
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




Sunday, March 31, 13
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


Sunday, March 31, 13
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

Sunday, March 31, 13
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

Sunday, March 31, 13
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

Sunday, March 31, 13
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?
Sunday, March 31, 13
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

Sunday, March 31, 13
Discussion




Sunday, March 31, 13
(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

           My Blog http://blog.pjain.me
Sunday, March 31, 13

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The Financial Crisis and India

  • 1. The Financial Crisis and India BarCamp Delhi October 11th-12th, 2008 Sunday, March 31, 13
  • 2. Intro 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 Sunday, March 31, 13
  • 3. 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 Sunday, March 31, 13
  • 4. 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 Sunday, March 31, 13
  • 5. 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 Sunday, March 31, 13
  • 6. 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 Sunday, March 31, 13
  • 7. 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 Sunday, March 31, 13
  • 8. 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 Sunday, March 31, 13
  • 9. 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? Sunday, March 31, 13
  • 10. 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 Sunday, March 31, 13
  • 12. (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 My Blog http://blog.pjain.me Sunday, March 31, 13
  • 13. PANKAJ JAIN | @PJAIN PJAIN [AT] TEKNATUS [DOT] COM The Financial Crisis and India BarCamp Delhi October 11th-12th, 2008 Sunday, March 31, 13