Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Indian Rupee to Stop here for a while and Why Rupee Fell?

Currencies / India Dec 14, 2011 - 05:35 AM GMT

By: Dhaval_Shah

Currencies  

Dear investor

Indian Rupee hit the target of 54, I had given in last letter titled “ Why Indian Rupee falling precipitously??” (Link).

I had also mentioned reasons for rupee’s sharp fall like Fiscal Deficit, Trade Deficit and bearish sentiments among Foreign Investors caused by hyperinflation and mismanagement of governance.  


Rupee has fallen close to 23% in value from around 44 to today’s high of 54.28 as I am penning this article.

Rupee has almost discounted major relevant factors. Some of the factors are still not publicly discussed in financial media but are of high relevance are our Debt to GDP ratio. Analyst may give you comfort that it is well within range and we need not to worry about it. Out debt is mostly internal and manageable. But, the other factor is not discussed about until last 2 days back, you had IIP data for the  month of Oct. It came -5%, is GDP. You have now analysts talking of 7% GDP this year, which I forecasted last year only. Situation is far worse than estimated, we may grow at just 6% and even may be below 6% in years to come. You look at growth in GDP and compare it with Govt borrowing in all those years, you would realise last 3-4 years growth was sustained by Govt spending and there is no real, participative- inclusive growth, Govt is talking about.

My regular readers know that I had been raising concerns on this since long that real economy is slowing. Since 2008, Govt has been borrowing close to 4.5 lac crore from the market to finance different budget schemes. Govt earns close to 6-6.5 lac crore revenue( as of 2009-10 budget estimates). From that, It spends 2.6 lac crore towards interest payment of past borrowing. Govt is left with just 3.5 to 4 lac crore real revenue to spend in economy. Since, it is not enough, Govt borrows close to 4.5 lac crore to match up with expenditures bringing total receipts to close to 10 lac crore.

If YOU go to bank and say, hey, my total income is Rs.10. Rs.6 from salary, Rs, 4 from borrowing and I spend Rs. 2.5 towards interest payment alone, leaving me with real income of Rs.3.5 and I want to borrow another Rs. 4 from you every year. Would bank lend you?? You would be chucked off. But, when it comes to Govt, standard changes and Govt keeps on borrowing until bond investors refuse to buy or asks for higher interest rates. Greece, Portugal, Italy, Ireland, Iceland and Spain have passed through similar situation.

If in this budget, Mr. Finance Minister does not alter his borrowing course and keeps spending without generating massive revenue through conventional and non conventional sources, We are seriously doomed for years to come. We can be another Greece.

In every Quarterly meet, RBI points out at Insane fiscal management and explains that without fiscal deficit control, measures taken by RBI would not produce intended results.

If I put current statistics in picture, our GDP for year 2010-11 has come at 48.77 lac crore and combined liabilities of Centre and State stands at 51.12 lac crore. Our Debt/GDP comes at staggering 104%.

These are all reasons why rupee was falling and Why I expected it to fall to 54 level.

What I expect in short term?

In short term, rupee can stay around this level. Shortly, it should retrace some of its gain falling to 51.50. None of the above mentioned factors(Govt Fiscal deficit and trade deficit) can be reversed in short term, Hence, pressure would continue on rupee.

Next steps taken by Govt would be of prime importance including revenue part of budget and other non budget measures to generate revenue. Govt borrowing program would be watched closely.

I expect this budget to be real tough. Govt would take numerous measures to generate higher revenue.

Best Wishes Dhaval Shah

Blog: http://investmentacademy.wordpress.com

E-mail: investmentacademy@yahoo.com, academyofinvestment@gmail.com

© 2010 Copyright Dhaval Shah - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in