Monday, May 03, 2010

India weighs capital controls with rupee on rise

Economic times reports on the RBI's efforts to curb the inflow of hot money into India. Instead of adding a tax to the inflow, the RBI should tax outflows so short term speculators think twice before speculating the currency. The govt. is pandering to the exports led IT lobby which will see rupee based earnings shrink as the rupee appreciates. RBI is trying to generate some fear among the investment community however given its inept record in overseeing the IPL Cayman islands/Marutius mess its credibility is doubtful when it is given the task of policing inflows into capital markets.

If foreign money from Caymans ended up in IPL, it would not be surprising if thousands of crores found its way in real estate deals. Anyone from Goa can tell you how much Russian money has influenced the rise of real estate there. Showing fake teeth to the public is what govt officials can do. The general population has to deal with the ineptness of its own elected and selected officials. Just quoting fancy Yale professors to solve India's problems is like applying balm for treating coronary heat disease. Sigh..

India's government is weighing capital controls with the rupee on the rise amid fears of "hot money" flowing into the country as investors pile back into Indian assets.

Unlike fellow emerging market giant China, India allows its currency to float freely and the central bank has warned of the dangers of "sharp and volatile" exchange rate movements that could hurt India's economy.

With the rupee riding at 18-month highs against the dollar, one idea Reserve Bank of India Governor Duvvuri Subbarao is airing to curb sudden big movements in the currency's value is a tax on foreign exchange transactions, known as a Tobin tax, similar to one Brazil introduced last year.

"Depending on what flows come in, we would employ measures, including if necessary something like the Tobin tax," Subbarao said last week, referring to a proposal first aired in the 1970s by Yale economics professor James Tobin.

8 comments:

Anonymous said...

RE gives phenomenal returns, time and again this is proved

http://timesofindia.indiatimes.com/NEWS/City/Mumbai/Snobs-pay-more-for-old-SoBo-buildings/articleshow/5884401.cms

Anonymous said...

Anon @ 10:39 PM

Following are the extract from the article:
A few weeks earlier, the country’s highest apartment transaction was recorded when a duplex at Samudra Mahal in Worli fetched a stupendous Rs 37 crore (over Rs 1 lakh per sq ft). When it was completed in 1970, Samudra Mahal was Mumbai’s most expensive building; the Scindias of Gwalior and the Wadias of Bombay Dyeing owned apartments here. Bookings commenced around Rs 700 a sq ft.
If you calculate this prime location in place like Mumbai has given less than 13.5%/year return. The same return is not possible in other cities or even in other non-prime locations in Mumbai.
Compare that with base value of 100 of Sensex on 1st April 1979 and 17000 now. The return is more than 18.5%/year.
So is RE still phenomenal?
Also there are so many other issues like you need have huge capital to invest in RE. It takes time to sell it.
So if you are not a stakeholder like builder or investor, I will suggest you to look for other options for the investment.
Lowest IQ

Anonymous said...

@Lowest IQ

Whilst agreeing with you in some respects, I just wonder what other safe investment opportunities are there

Anonymous said...

I would say that all this emerging market story and growth in China and India is due to easy credit policies in these countries and stimulus provided by these Govts.

As soon as monetary policy is tightened in these countries in a year or so and stimulus withdrawn, all the foreign investments in Sensex will head backto US markets and RE will stop seeing all that easy money. Once the liquidity dries up, RE will easily fall upto 70% in some areas and by upto 50% in many parts of India.

Now GOvt. can keep easy monetary policy and can induce more stimulus, but then India could easily become Greece. In terms of debt to GDP ratio, India is almost at 82% and if the Govt. doesn't reduce it in another 6 months or so, S&P or Moodys will downgrade Indias debt o "Junk" which means Greece for India.

Anonymous said...

Anon @4:51 AM
I feel if you are going to invest long term (8-10 years) then the risk in equities is negligible. Even for the span of the 5 years risk reduces by significant amount.
Instead of going all out in the market invest systematically over a period.
You may also go for mutual funds so that there are experts to take care of your money.
After all the safest investment of FD is not that safe in actual. The RBI guarantees FD of up to Rs 100000 for a given bank per customer. That is if you are keeping more than 1L as FD in your bank account, if the bank goes bust then there is no guarantee that you will get the money.
As far as RE is concerned please checkout link below to understand the actual returns we get on it.
http://www.deepakshenoy.com/articles/realestate/realestatecf.htm

Lowest IQ

Anonymous said...

The returns on Stocks and RE for the past 6-7 years are not organic but based on massive political intervention and Govt. stimulus which has acted as steroids.

Wait for Sensex to go down today by 500 points.

Anonymous said...

Anon above:
Looks like no sex for Sensex today.
It will definitely go down by 2.5-3%.

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