Friday, November 25, 2011

Retail opening cheers big firms


Commercial space and shops in Tier-1 and Tier-2 cities will now see a jump in prices. In London Tesco Express is ubiquitous and found in every corner of the city. Tesco Express'es operate in 1000 sq ft of space. I forsee every suburb to have multiple mini big box express shops of every retailers as there is very little available retail space in most of these areas.  I would not be surprised  if prices of commercial shops rise another 25% from here. 

(Reuters) - India's move to open its supermarket sector to foreign investors brought relief to its capital-starved local chains but failed to impress small-shop owners who dominate retail in the country, despite rules intended to safeguard small operators.
The government approved its biggest reform in years by allowing global supermarket giants such as Wal-Mart Stores Inc and Tesco to enter India with a 51 percent stake in the hope it would attract capital to build much-needed supply chains and improve efficiency to alleviate food-driven inflation.
"This is an extremely important step for domestic retailers as this will get in much-needed capital, apart from domain knowledge," said Thomas Varghese, chief executive of Aditya Birla Retail.
Chain stores account for just 6 percent of a $500 billion retail market dominated by street stalls and corner shops.
Many Indian chains are cash-strapped and loss-making, struggling to build scale given high costs, poor supply chains and scarce real estate and have been eyeing equity investments and joint venture partnerships with global firms to build scale.
Vijay Karwal, head of consumer, retail and healthcare for Asia at Royal Bank of Scotland based in Hong Kong expects more than $5 billion in foreign investment into the Indian retail sector over the next five to seven years.
Given the relative lack of modern retail infrastructure in India, and particularly in the enabling back-end infrastructure ... the vast majority of investment this change is expected to trigger would be greenfield investment into new retail sites and infrastructure," he said.
Shares in Indian retailers Pantaloon Retail, Shoppers Stop, Trent jumped -- bucking a fall in the wider stock market -- on expectations that they will form tie-ups with foreign players, and not just compete with them.
Debashish Mukherjee, partner and vice-president at consultancy firm AT Kearney, expects joint ventures and investments in local players from overseas operators over the next six months.
"The set of transactions which will happen fast is foreign players who are in existing joint ventures with Indian firms, the increase or decrease in stake, will happen quickly," he said. "The second are a set of deals that are waiting to happen and have been just waiting for the announcement."
SMALL SHOPS UNHAPPY
To appease opponents, the government said foreign stores will only be permitted in cities of more than 1 million -- of which India has more than 50 -- and individual states can decide whether to allow global players on to their patch.
It also insists that foreign retailers source almost a third of their produce from small industries, invest at least $100 million in India and spend half of that on infrastructure such as cold storage and warehouses.
Many small shop owners fear for their livelihoods.
"It will affect my business as families prefer going to air-conditioned stores with fancy packaged goods these days," said Vinod Jain, a 27-year-old small grocery shop owner in the Lower Parel neighborhood of central Mumbai.
A trade group representing so-called "kirana" shop owners is planning protests.
"The move to let the foreign retailers in will most certainly lead to job losses," said Praveen Khandelwal, general secretary of the Confederation of All India Traders.
"They should have worked on some kind of protectionist mechanism for smaller traders before coming out with this policy," he said.
Foreign retailers who welcomed the Indian government's move to open the sector also view the entry conditions with caution.
"Some of the conditions look quite stringent. The investment in particular -- it's all quite big money. We'd need to know the details, and how that would be accounted for," said an official with a major global retailer who did not wish to be identified.

95 comments:

Anonymous said...

This is a great long term news!!!

It will take 5-10 years before we see any significant FDI due to this new law.

Anonymous said...

This is the congress agenda of corruption...Selling off India piece by piece, create more avenues for graft and propagandize it as a shining example liberalisation. Congress has always been = inflation + corruption + unpatriotic.

Anonymous said...

huh? what are you talking about??

This is one of the best news for average India...they will have to learn how organized retail works..but there are benefits for everybody, unless you are one of that corner shopkeeper!!

Anonymous said...

This is good news for Indian buyers. When two corporate giants fight for share of market , buyers get benefited. These local shops are not efficient as well as they are community dominated, do not pay sales taxes , income taxes etc. I am waiting for these guys to be booted out. The funny part is these guys also have attitude , it's like I am not here to sale but u are here to buy so if u want take it or leave it.

Anonymous said...

Less Local Shops = Less Money for marwaris/gujaratis = less investment/black money = decline in RE investors = GOOD FOR US :)

so we are benefitting either way.

samix said...

Less Local Shops = Less Money for marwaris/gujaratis

Who do you think is going to hold the other 49% ?

polt said...

The part about the rise in rents/prices for commercial RE seems improbable. If the small retailers are going out of business, this should offset the demand for space by the big retailers. One can easily consolidate 2-3 stores next to each other and create a bigger one.

samix said...

By the way I live in the Middle East, here there are many local retailers mostly run by people from kerela and there are many Walmart type chains here.

Those chains have not been able to put them out of business, just the business model has changed, now these small time retailers operate like this

1) You park your car outside and they will get stuff for you in the car.

2) They will do quick home deliveries.

This is to counter the fact that when you go to a Walmart type shop you will have to park, walk in, search for the item that you are looking for, then stand in a line to pay, so basically they have now switched to personalized service.

shailesh said...

I would say the best thing it will do is to de-congest our cities. Walmart is not going to be able to get large tract of empty land within city. Even if it is available, it will not pay premium prices being quoted at this stage. The only thing companies like Walmart can do is buy large tract of land in outskirts. This will develop large tract of lands in outskirts and decongest our cities. Once walmart decides to open large format shop in outskirts, all other things will follow, such as builders rushing to build homes around it. The housing will be much more cheaper compared to old congested cities. Many people don't want to move to outskirts due to lack of options such as retail, hospitals, schools, colleges etc.. I think Walmart and chains like that have potential to expand in large tracts in outskirts and de-congest cities.

samix said...

sailesh, what you mention above is a chicken and egg situation, if they go on the outskirts of congested towns then they will have to wait for not just the builders but roads, railways, schools, hospitals everything to come up before they start to do brisk business.

On the other hand, if they want large tracts of land in the city they will have to spend a lot of money, considering that they are gonna invest in dollars and that rupee is sinking, they would much rather select the second option where they already have a customer base ?

Anonymous said...

Kya Bhai Log?

We used to talk about Bricks and Mortar, and now, we talk about Aloo and Baingan? What has happened to you all?

punter said...

nex stop....monsanto's GM food.
Pray for our farmer's.... folks.

Anonymous said...

Better yet Walmart can dictate government to lower prices so they can buy land. lol

else we will be shopping on top a 5*5 width wall. so then walmart will really be wall-mart.

samix said...
This comment has been removed by the author.
samix said...

Better yet Walmart can dictate government to lower prices so they can buy land. lol

Oh sure, I wont be surprised, if the Government of India actually gives them land to do business, or gives them a commercial loan to buy land at 0 to 1%, all for the good of the Indian people!

Anonymous said...

Who are you kidding? With $5 billion investment they wouldn't be able to buy even land for even 5 big box walmart store.

Did you forget $5 million per acre land in rural areas. A 100 sq. ft illegally occupied shanty costs $50K. So, 1 acre land must be worth $100 million. Big box retailers would need car parking space for shoppers to shop in volume.

Anonymous said...

One of the dumbest reasons I've heard as to why "RE can only go up" is that Sellers don't need to sell even if prices go down as they already wealthy and have other assets they can fall back on.

Why doesn't this hold true for stocks then? The owners of stocks all have massive wealth in other asset classes, so if the value of their stocks fall, they don't need to sell it. They will never sell it and hold on to their stocks until doomsday.

By this theory, Indian stock markets can "never go down" as well.

I'm afraid there's a lot of foolishness out there masquerading as astute analysis.

Anonymous said...

Great news for these outsiders. Big retailers can buy in bulk, and with their highly organized distribution supply chain, they will wipe out middle class retailers. But that doesn't happen overnight, takes about 3 to 5 years. Losing time for middle class.

Now only innovation, creativity can save middle class... Time will tell how corruption will overcome big giants. Laws to attitude needs to be changed with globalization.

Anonymous said...

Guys,

Hold on.

Many state government oppose this move of allowing FDI in retail. Remember state government's nod is needed.

So the Real Estate Shark's expectation won't be materialised too soon. The lobby of media & RE sharks propanganda won't work anymore.

Let them benefit after the coming crash. BUT NOT NOW.

Anonymous said...

This particular bill was passed in hush hush manner and the fools in the cabinet themselves did not notice that the 30% procurement limit from SME does not limit to Indian companies. This is how the state of affairs handled in India.

The big fraud of all of them said that stock markets would have fallen 400 points had they not passed the bill on Friday. Who cares a f*** if stock markets fallen or not?

Anonymous said...

The media & Industry lobby pressurized and blackmailed the bunch of jokers (including so called financial guru manmohan singh) to pass bills of such importance without considering the consequences.

The guys like kamaths,parekhs,mahindras,mittals,ambanis,tatas who are openly blackmailinng the govt needs to be punished.

Pawan said...

The bursting of the global housing bubble is only halfway through: http://www.economist.com/node/21540231

samix said...
This comment has been removed by the author.
samix said...

bunch of jokers (including so called financial guru manmohan singh)

I would disagree, they are not a bunch of jokers, rather a bunch of sold outs, they are implementing stock IMF/World Bank policies, nothing new. Many countries have been raped and pillaged through this mechanism, now it is our turn.

Anonymous said...

"hey are implementing stock IMF/World Bank policies, nothing new. Many countries have been raped and pillaged through this mechanism, now it is our turn."

Care to elaborate? Which countries exactly? Name a few countries that were "raped and pillaged" through IMF/World Bank policies?

Surely you must be able to support your rabble-rousing hot-air with some solid facts?

Anonymous said...

//Care to elaborate? Which countries exactly? Name a few countries that were "raped and pillaged" through IMF/World Bank policies? //

Very interesting question Sir...

Are you stopped reading newspapers??

DhImAn said...

Care to elaborate? Which countries exactly? Name a few countries that were "raped and pillaged" through IMF/World Bank policies?

Russia, most of South America, Mexico, most of Asia and more recently, the PIIGS, the rest of Europe and the US.

Come on, if this needs to be spelled out, you need to do some serious reading or some serious growing up, Anonymous @1:22.

Anonymous said...

"Russia, most of South America, Mexico, most of Asia and more recently, the PIIGS, the rest of Europe and the US."

Let's see...

Russia is a BRIC country, one of the fastest growing economies in the World.

South America is the ONLY region in the world not contributing to global risk presently. All the rest of the developed world are mired in problems (US - printing/debt, Europe - Euro/Default). However, South America just seems to be humming along fine with a growing GDP.

"Most of Asia" - Let's see, China is in BRIC. India is prosperous with 1 Crore houses and the streets paved with Mercedes Benz's. Everyone has Plasma TVs and Cell phones. Japan, Singapore, Hong Kong, Taiwan and Korea are all burgeoning with growth. Vietnam, Thailand, etc. are fast catching up. Malaysia is rock stable.

Do I need to go on? It looks like you are the one in need of an education and needs to do some reading.

samix said...

anon above, I dunno if you are being sarcastic or serious, none the less, all the growth and development that you are referring to is mostly on the back of unlimited credit expansion(money printing - roughly) by the Central Banks of the countries involved.

With respect to GDP numbers, you just need to see how they are played around with to know how serious they are to be taken.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Anonymous said...

Just saw this story: http://www.ndtv.com/article/world/philippines-overtakes-india-as-hub-of-call-centers-153452?pfrom=home-topstories

The call center jobs were one of the first to come to India, the jobs that put "easy money" in the hands of youngsters who could shop for Denims at the local mall. Looks like all those jobs have already moved to another country in a big way.

DhImAn said...

Samix, I don't usually engage in ad hominem attacks, or in foul language, but I have to say one thing about this Anonymous. This guy is a fucking immature retard, and that's me being too kind.

The guy confuses his history with his economics, and gets both wrong.

The question was "Name a few countries that were "raped and pillaged" through IMF/World Bank policies?"

Anybody who isn't either a retard or immature or both, as our anonymous friend is, will not change the question midway through the argument and assert that these countries are today wherever they are in terms of economics.

Not that they are doing very well by objective numbers such as debt/GDB and so on; but that wasn't the question and is therefore irrelevant.

Anonymous said...

"Russia is a BRIC country, one of the fastest growing economies in the World.

South America is the ONLY region in the world not contributing to global risk presently. All the rest of the developed world are mired in problems (US - printing/debt, Europe - Euro/Default). However, South America just seems to be humming along fine with a growing GDP.

"Most of Asia" - Let's see, China is in BRIC. India is prosperous with 1 Crore houses and the streets paved with Mercedes Benz's. Everyone has Plasma TVs and Cell phones. Japan, Singapore, Hong Kong, Taiwan and Korea are all burgeoning with growth. Vietnam, Thailand, etc. are fast catching up. Malaysia is rock stable. "



Let me summarize for you. Inflation = growth. High inflation = High growth. Each of these countries have pulled inflation high to show prosperity. USA did for decades and we know how it ends up to...

Give me hundreds and I will show you thousands, give me thousands I will show you lakhs. Got it?

What exactly are these BRIC country growing on? Benz is Germany, Plasma and LED TVs are creation of Japan or western countries. BTW, how many Mercedes Benz have you seen in India? You show me one in India, I will show you hundreds in western countries (most of them purchased on credit). Take that credit line away and then we talk.

Basically with credit expansion, these BRIC are purchasing goods, that doesn't make them rich or growing.

In USA, with just increase of 12K USD in earning/credit per year you can afford twice as much house in EMI (4%). So people buy bigger and expensive houses, that doesn't mean asset value is high or growth is high.

I think it is not your reading issue, it is your analytical issue.

skeptic's ghost said...

Regarding FDI in retail the remaining 49% will not be held by Marwari seths but instead Politicians and Land Mafia because they will make it an avenue to convert black money to white for regular usage - already the Bharti Retail Walmart stores opening in Pune have been selectively chosen in complexes owned by local MLAs and corporators.
They will buy stock from farmers cheap (which is untaxed) and sell it retail and keep the moolah.

I feel bad for the Baniya community because they won't be able to compete in prices, especially in a price sensitive market like India. only slum areas will be served by shops.

GSM said...

Basically with credit expansion, these BRIC are purchasing goods, that doesn't make them rich or growing.

Credit expansion in BRIC countries are also going into boosting production in manufacturing and mining. Without a credit expansion it is not possible to tap the ample resources around us. The main problem in these countries is corruption and housing bubbles. And bubbles are not bad things. It helps people to leverage their assets and buy things that would otherwise be deemed unaffordable and that increases the standard of living. Let me a give a simple example. Does it pinch to buy a car paying cash of 5L at once? Now again, does it pinch to buy the same car on loan when you have bought a flat for 50L on loan and currently the market selling price is 60L? The credit expansion bought about by buying the flat and car creates jobs and grows the economy. And when the bubble bursts there will always be a new one in creation to keep the party going on unless the Govts want to sustain a bursting one.

DhImAn said...

Credit expansion, hmm? Let me try to explain this in a way that is more understandable.

Let's say you have $100 to start a business. You won't be able to do much, of course, and your productivity will be zero.

But let's say I lend you $10,000 to do your business; now you can go out and buy inventory, rent an office and so on - your productivity became non-zero.

However, there is a catch to this latter scenario. You have to make enough off the business to pay me back with interest, the amount borrowed.

Let's say you are making enough to pay me back; and everything is humming along nicely.

Then you get the bright idea, hey - let me borrow another $10,000 from DhImAn - my business is growing, there are more customers, I can actually expand further.

So you borrow another $10,000 and voila, your productivity goes up further.

So, if we were to make a little measure out if it, we'd say that for every $1 of debt added by you, your productivity increases by say $2. Thus, your marginal productivity of debt is the ratio of delta(productivity)/delta(debt), or in this case, 2.

It is intuitively easy to see how debt can boost productivity so much. If you borrow and add say machines where earlier things were made by hand, your productivity grows exponentially, and you have high marginal productivity of debt.

Continuing further, lets say you now borrow $10 million; what does this do to your productivity? After all if a little debt is good, then more should be better, right?

No. Your interest burden now would become so high that your productivity would actually drop; a situation where adding $1 of debt actually reduces your productivity; or a marginal productivity of debt ratio below 0.

For countries, a marginal debt to GDP ratio is measured - this measures the effect of each additional unit of debt on GDP growth.

Right now, the marginal productivity of debt for the US is negative; a situation that happened for the first time in the 235 years that the United States has existed.

BRIC countries, PIIGS and everybody else have traveled down this road of increasing debt (or credit); and now are in the inexorable situation of seeing their GDP or productivity in decline.

Eventually the debt load becomes so large that you will not be able to service it. Period. This applies to individuals, nations, everybody. The problems of today are quite simply, this.

For further reading, see this excellent article: The Marginal Productivity of Debt

samix said...

Dhiman, thank you for your support!

Without a credit expansion it is not possible to tap the ample resources around us.

Actually the problem is not Credit Expansion per se, the problem is credit expansion in unlimited quantities in the form of a fiat currency, which as you rightly mentioned puts us on a roller coaster ride full of booms and busts.


let me put forth a moral argument, due to this credit expansion in unlimited quantities we are not tapping resources, rather we are exploiting and fast depleting resources around us.

GSM said...

Continuing further, lets say you now borrow $10 million; what does this do to your productivity? After all if a little debt is good, then more should be better, right?

If there were no monetary expansion from you of $10,000, I would never be able to start a business, employ people and create goods for consumption.
When I am borrowing $10 million that is where we are reaching a speculation phase with Euphoria around me and my investors where there is no concern for debt or interest. Mostly likely I go bust because of over production and you lose $10 million for lending to me recklessly too. But equally because of that Euphoria I am able to give a supply infrastructure of $10 million, which would have never have been possible in the first place without you lending me. But when the Govt tries to bail out me or you, it will make sure that there will be another person who cannot get his business started and employ people and produce something else benefical to continue the cycle. And definitely the money that is created to bail me and you out will not go into adding additional supply because there is already over production, it will just go into speculation trading crude oil or food and that increases inflation.


Right now, the marginal productivity of debt for the US is negative; a situation that happened for the first time in the 235 years that the United States has existed.

That is a different argument. 65% of Americas's wealth is held by Financial institutions which creates money supply mostly for speculative activities in derivatives, financial instruments and lending it for consumption without actually helping to producing real goods and services to keep the system sustainable.

Actually the problem is not Credit Expansion per se, the problem is credit expansion in unlimited quantities in the form of a fiat currency, which as you rightly mentioned puts us on a roller coaster ride full of booms and busts.

The amount of money supply is suposed to be regulated by central bankers who are suposed to be independent decision makers. If they fail to do their job correctly and blow it up, it is not the mistake of the system.

let me put forth a moral argument, due to this credit expansion in unlimited quantities we are not tapping resources, rather we are exploiting and fast depleting resources around us.

Let me put the question back to you. The African nations with the highest untapped resources and the poorest have the lowest debt to GDP. And the most developed nations in Europe, America and Japan have the highest debt to GDP. Which one of these 2 options will you choose, a poor African kid dying because he cannot get basic food or a public sector worker in Greece unable to afford vacation because of austerity?

samix said...

Thanks for your reply GSM

The amount of money supply is suposed to be regulated by central bankers who are suposed to be independent decision makers.

The question is, if we live in a democratic country why are they independent decision makers when economics is the life and blood of any nation ? Why are the actual decision makers independent and appointed, whereas we are allowed to choose jokers who read out papers written by bureaucrats ?

Don't you think we should have a say before the central bankers go ahead and dilute our currency, or play with interest rates , because it affects all of us directly ?

If they fail to do their job correctly and blow it up, it is not the mistake of the system.

If they fail to do their Job. which Central bankers have always managed to do, in-spite of being considered the best of the lot, we should disband Central Banking and place issues of money directly in the hands of the people, let them decide what best to use as money.

Let me put the question back to you. The African nations with the highest untapped resources and the poorest have the lowest debt to GDP. And the most developed nations in Europe, America and Japan have the highest debt to GDP. Which one of these 2 options will you choose, a poor African kid dying because he cannot get basic food or a public sector worker in Greece unable to afford vacation because of austerity?


I am all for the utilization of resources to feed and clothe the poor, the problem is that with unbridled(unlimited) money printing, infinite amount of money chases a finite amount of natural resources, and thus people in their attempt to corner most of that money, exert even more efforts to exploit the resources, and ultimately a couple of generations end up using all that should have been shared by future generations.

for example, hypothetically the FED can print enough dollars to buy all timber in the world, and people who work in the timer industry wont blink before bringing down any tree that they find in their way. So you see in this way unbridled money printing obfuscates the real demand in the market. Through money printing the Central bank in coo-hots with the government can create false demand and channel all human energy and resources in that direction.

by the way Zimbabwe printed all it could, and we know what happened to that country, so you see someone can say that the trick is to not overprint, but the problem is that politicains will always choose the easiest path and policies that will get them elected in the next term, hoping to delay the problem, and print they will!

DhImAn said...

GSM: If there were no monetary expansion from you of $10,000, I would never be able to start a business, employ people and create goods for consumption.

I agree with the rest of what you've written except for this one sentence. Your borrowing $10,000 does not imply I created it out of thin air. I gave you my savings, which came out of hard earned money, which became your capital.

You see, borrowing within some limits could do good things - but borrowing doesn't necessarily imply monetary expansion.

When it does, you land up in deeper trouble; borrowing combined with monetary inflation to pay the principal and interest - that is a vicious cycle from which there is no escape, except the destruction of your currency, or the destruction of your creditors.

Debt to GDP is not that effective a measure for this malaise - a more potent measure is the marginal productivity of debt - and Prof. Fekete's paper illustrates that amply.

About Africa vs. Greece - there are many reasons why this is so; these have more to do with colonial and neo-colonial slavery and exploitation than with economics per se.

Ankan said...

Interesting post,thanks for sharing this.

Ankan said...

Thanks for making such a cool post which is really very well written.

Ankan said...

Informative blog post.keep up the good work.

GSM said...

@Samix
Through money printing the Central bank in coo-hots with the government can create false demand and channel all human energy and resources in that direction.

I agree with all of your other points. But don't you think we need all the energy and resources in Indian infrastructure so it can solve our problem with in just 5 years. Without it, I can bet just like Indian railways even after 50 years the results won't be satisfactory.

@Dhiman
Your borrowing $10,000 does not imply I created it out of thin air.I gave you my savings, which came out of hard earned money, which became your capital.

If your point is about fixed monetary system like Gold standard, then it works perfectly for finite resources. But in case of a technological advancement, and to get it to the affordability of a common man in a short span of time which is NOT dependent on finite resources, we need a expansion in money supply. That is where central bankers need to do a good balancing job routinely flushing out speculators causing the bubble.

shailesh said...

Lot of money is created out of thin air, it is called fractional reserve banking

Fractional reserve banking

shailesh said...

Can sales drop 70% and prices rise 20%? Yes, in Mumbai realty it can.

Property sales in Mumbai’s overheated market have dropped by a jaw-dropping 70 percent from 2007 peak levels while overall prices have risen 20 percent.

With builders pressed to service their short-term debt, buyers have already begun to cancel thier bookings in many instances. The highest impact of the drop in sales has been on Central Mumbai, where the quantam of unsold inventory has gone up to more than 45 percent of the launched units, says the report.

Once realty players are unable to improve their cash positions, they will be forced to reduce prices of projects in order to meet their short-term obligations, predicts Das. And this is exactly what is happening right now.

Developers are offering huge discounts in certain isolated premium micro pockets like Parel, Lower Parel and Mahalaxmi. “Developers have been more open to negotiation in the premium segment reducing prices by as much as 25% in favour of a sizeable up-front payment,” says Das in his report. But as the core of the residential market moves northwards, pockets in Navi Mumbai, Thane and the peripheral suburbs of Central & Western Mumbai have either been stable or have trended marginally upwards.

GSM said...

And Dhiman, I don't agree with your statement comparing BRICS with PIIGS on their debt. I believe the world is a zero sum game, in an event of Euro or Dollar collapse, it will not be a depression in the world as commented by analysts. Instead somebody else simply fills up the vacuum created after a brief slowdown and the system rebalances itself. At this point only BRICS only seem have a fundamental and demographic advantage.

Anonymous said...

All GOI has to do is get black money back into country, we will have strong Rupee. No need for Retail investors!

aam aadmi said...

@GSM
I guess there was a discussion on increasing money supply before, it doesn't die down does it :)

I believe the world is a zero sum game, in an event of Euro or Dollar collapse, it will not be a depression in the world as commented by analysts. Instead somebody else simply fills up the vacuum created after a brief slowdown and the system rebalances itself.

The global system is not a closed loop stable system, our capitalist society constantly requires new areas to conquer and new territories to devour, without which it will collapse. Our markets need growth, GDP's require growth, companies need growth to attract capital, which is why we have a fractional reserve banking in the first place. After all every rupee lent is basically a claim on the future, increasing the money supply can only work as long as resource base constantly keeps increasing, it's increasingly evident that we are hitting the resource limits in terms of oil, water and cultivable land. So you can basically see where we are going.

aam aadmi said...

Even if we get a recovery of some sort it will last till oil price once again hits $147.

It's not too difficult to visualize why we are having a recession in the first place and why it will be impossible to get out of it in the conventional sense.

Anonymous said...

"Indian groups at risk of default on dollar debt" - http://www.ft.com/intl/cms/s/0/8c01cce2-19c6-11e1-ba5d-00144feabdc0.html?ftcamp=rss#axzz1eyEXH72z

More pain for our corporates. Tata motors share price has fallen by 86% this year, due to its external debt. However, amounts are relatively small (around $500 million) considering the size of these firms.

This will also lead to stresses in Indian banks as they too have exposure to these companies.

2012 will be an interesting ride. Buckle up.

samix said...

I agree with all of your other points. But don't you think we need all the energy and resources in Indian infrastructure so it can solve our problem with in just 5 years

Allow me to elaborate, the problem is not when money is spent in useful programs and sectors. The problem emerges when Central Bank money printing starts creating false demand and obfuscating the market forces, you see for example, how cheap loans have propelled RE boom everywhere around the world ? in the US so many jobs were based around this one industry, but once the collapse came everything went haywire and all those jobs are now lost. Rather if the US government would have allowed the free markets to rule, then capital would have sought more sustainable avenues, creating stable jobs and opportunities with maybe lower returns.

The thing is that all people in the society are not economists, when central bank money printing starts to cause a boom in a particular sector the common man starts to invest there as he feels it is there to stay, he does not understand all the equations that support to this sector may be temporary etc, others start planning their careers around it, Politicians further strengthen the illusion by forcing the central banks to keep supporting that particular boom because votes depend on it, then one fine day when the can can be kicked no further down the road, it hits the wall real hard!

I hope I was able to convey the point, coz I am myself very new to this concept and thus putting it into words is a bit difficult for me at this stage.

Anonymous said...

Why is govt. opening up retail business to FDI to the extent of 51% ownership. MMS or whoever behind him, is killing two birds with one stone. Here is how.

Billions of dollars stashed abroad by unscrupulous business men, Ministers, Bureaucrats can be safely brought into India without a scandal and reinvested in collaboration with big time box stores . By the time Anna Hazare and Advani succeed in pressurizing govt to bring back black money stashed abroad , there will be none left in those accounts.

Business will continue as usual.

Thanks to quick thinking of UPA

Anonymous said...

"More pain for our corporates. Tata motors share price has fallen by 86% this year, due to its external debt. However, amounts are relatively small (around $500 million) considering the size of these firms.

This will also lead to stresses in Indian banks as they too have exposure to these companies. "

Funny, how with all this doom and gloom, RE prices haven't budged by as much as one paise. Maybe it is different this time. Let's say it all together: "RE can only go up"!

Mera Bharat Mahan!

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Anonymous said...

For ragged realtors, retail FDI is a Godsend

Ankan said...

Nice post providing good information.

skeptic's ghost said...

QE3 has started - Uncle Ba b b b b b Benny and his inkJets

http://online.wsj.com/article/SB10001424052970204012004577069960192509068.html

Even China is cutting interest rates
Everyone is complicit in the great ponzi scheme

Anonymous said...

"skeptic's ghost said...
QE3 has started - Uncle Ba b b b b b Benny and his inkJets"

That was expected. Isn't it. Find easy way out.

What happens to INR/USD now. India has to more ink their press than USA and ofcourse speed of printing matters too. Let the Race begin.

Anonymous said...

UPA headed by MMS has a plan to make Rupee fully convertible before next election. This, combined with 100% FDI in retail is likely to take Rupee from current 52.5 to $ to full 100.

Those of you who have surplus cash, it is an opportune moment to invest in US $. In the last two weeks has seen an huge influx of $ and gold from Dubai.


Investment Guru

Anonymous said...

"UPA headed by MMS has a plan to make Rupee fully convertible before next election. "

If INR is made fully convertible, RE will crash hander than the Hindenburg as money flows out of India to seek alternative investment destinations. What has kept RE rock stable over the past few decades is the fact that Indians can't really invest in other investment classes outside India.

UPA may be greedy and corrupt, but they are not stupid.

Anonymous said...

Question for the posters here:


Have any of you on this Board met anyone bearish on Indian RE in real life (i.e. outside this Board) among friends, family or acquaintance?

In other words, have you actually met anyone else who doesn't believe that "Indian RE can only go up"?

Anonymous said...

"Have any of you on this Board met anyone bearish on Indian RE in real life (i.e. outside this Board) among friends, family or acquaintance? "

No - Most people I've met dismiss talk of any RE correction.. Something not worth discussing. This includes the older generation who've witnessed the correction in the 90s as well. The arguments are the same, how this time it is different!

DhImAn said...

"Have any of you on this Board met anyone bearish on Indian RE in real life (i.e. outside this Board) among friends, family or acquaintance? "

No.

That's precisely what scares me.

Pawan said...

@Dhiman,
Excellent posts specially the link about 'Marginal Productivity of Debt'.

Now that we have established that govt. all over the world will keep printing and screwing the savers, what would you say is the best saving mechanism? OR is it best to just spread your bets equally amongst gold, stocks, RE and debt?

Bubbles will come and go but the ultimate aim should be to protect your savings from inflation and hopefully make a real positive return on them as well.

Anonymous said...

http://www.indiainfoline.com/Discuss/Blogs/Ek-Ghar-ki-kahani/1477630

Anonymous said...

@Shailesh - the Reason behind why prices are not falling... its simple maths...

2010: 40 lacs flat X 10 Total Sales = 400 lacs or 4 crore net sale

Now lets say sale is dropped by 30% on y-o-y basis ,but prices are almost double, so

2011: 70 lacs flat X 7 Total Sales = 490 lacs or 4.9 crores

Which means, even if the sales is down by 30%, builders are making good money, even if they manage to sell, only there few flats at much more higher prices

aam aadmi said...

"Have any of you on this Board met anyone bearish on Indian RE in real life (i.e. outside this Board) among friends, family or acquaintance? "

Nope. And they don't know the answer as to why it should keep rising. The usual reply is "it always goes up".

Monkey see monkey do. I feel even if prices don't crash they are not going to rise at greater than 4-5% and that in itself is a correction given the 20% inflation that we are running. Makes more sense to invest in precious metals given the lack of rupee convertibility.

Anonymous said...

In the last few weeks, the number of flats for sale on online sites has dramatically gone DOWN. This is strange, as one would expect many more properties to be listed if the market is weak.

What is going on ?!

Ankan said...

You have done a very good job.
Excellent post!

Parth said...

Not related to opening up of FDI in retail, but the research from Knight Frank says about Mumbai's reality

http://karvyrealty.com/PDFs/E&R%20@Glance_Jan'11.pdf

Parth said...

Not related to opening up of FDI in retail, but below is a research report from Knight Frank about Mumbai's reality

http://karvyrealty.com/PDFs/E&R%20@Glance_Jan'11.pdf

Anonymous said...

"UPA headed by MMS has a plan to make Rupee fully convertible before next election."

Easier said than done. Repercussions of such a move are hard to predict. If at all, such a move is going to be made, it will be after the election and if UPA gains majority.

Anonymous said...

"In the last few weeks, the number of flats for sale on online sites has dramatically gone DOWN. This is strange, as one would expect many more properties to be listed if the market is weak."

You're looking here at a people who have been indoctrinated from childhood about that aunt who bought a flat for Rs 2000 in 1970 which is now worth 2 Crores. I think in light of a slowdown where there are no purchasers, unlike rational economic actors in other parts of the World, Sellers here will simply take their properties off the market to await better prices.

And hence the mythology that "Sales may go down but prices will never go down".

DhImAn said...

@Pawan: Thanks for your support, Pawan. You asked, "OR is it best to just spread your bets equally amongst gold, stocks, RE and debt?"

Let me try to answer.

There is only one important thing you need to think about, and everything else will be clear.

That one thing is your time horizon. If you are thinking long term, and I mean over 20 years, then gold is the only place to be. Physical, non-numismatic, small unit weight bullion. Or pure gold jewellery around your significant others neck and arms.

If you are thinking short term, make some bets on stocks, RE, whatever.

Allocate your assets; say you have Rs 100 total. Decide upon a fraction that you will tuck away in gold; say this is Rs 50.

Take the remaining Rs. 50 and put it in five different things; Rs 10 in RE, Rs 10 in stocks, Rs 10 in FDs, Rs 10 in other currencies and Rs 10 in commodities.

Then, whenever you are making a fair profit on any of your other investments, take the profit.

So suppose your stocks went to Rs. 14. Sell them and take the Rs. 4 as profit.

Immediately put away the profit - Rs 4 - as your long term asset in physical bullion, wait till the market cools, or find another stock on a rising curve and put back the Rs. 10 in that sector. Or switch sectors.

The idea is to use a certain amount of your savings as capital that keeps getting recycled into the "business", and put away the "profits" as long term assets you wouldn't touch until the world comes crashing down.

Also, if you have income from a job or wherever, take the amount you save, put half of it in your long term asset - bullion, and put half in your "business" - the other investments. This grows your "business" and grows your asset base as well.

Just keep at this month after month, year after year, and you'll see your net worth grow and grow.

You could even do legal things like make a trust (or HUF in India) to handle the investments and so on to save on taxes.

The world is a fun financial game - but an unfair one. The odds are stacked high that you will lose on your "business"; but that is what that other 50% asset base is for. On the other hand, if you make big profits, your assets grow; if the system collapses, you are still safe.

Change the allocation numbers or investments as you see fit; I just gave examples.

DhImAn said...

My posts keep disappearing!

DhImAn said...

Sellers here will simply take their properties off the market to await better prices.

Except that aunts go to heaven, their children bicker and fight over the inheritance and end up selling and dividing the cash.

Or jobs in India are lost because customers get screwed (Europe, US). people can't pay their EMIs and are forced to sell.

Or inflation gets so out of hand that the several lakhs per month salaries don't buy jack and people are forced to sell.

Or a war breaks out, all hell breaks loose, and people are too scared to stay in big cities because of all the violence and looting and are thus forced to sell.

There are any number of factors that can bring housing inventory on to the market. Sure, builders may scrunch up their sphincters really tight, and not let inventory flow; but that's only for new construction. Inventory can come from old flats too; all people have to do is some renovation on an old flat to have a dream home.

Eventually some builder on the verge of bankruptcy will blink, not be able to hold in the inventory any longer, and voila, you have a full blown crash in progress.

This is like the proverbial cracked dam and patching it to hold the water back; you can do it only for so long. Forces of nature will break the dam eventually because the pressure will increase and you will run out of resources to keep patching it.

This is my energy argument for everything - a system that needs energy input to stay in a stable state will collapse when the energy runs out.

In this case the energy in the system is builders, politicians etc. all working hard to make sure prices don't fall; in their absence, prices would fall, and as soon as there is some issue that depletes the energy, poof goes your stability.

Anonymous said...

@DhimAn

"That one thing is your time horizon. If you are thinking long term, and I mean over 20 years, then gold is the only place to be."

I'm afraid, there are a lot of issues with this advice. First of all, psychologically, it is impossible for anyone to commit to a 20 year time horizon. That is simply too long a period of time to stomach massive ups and downs in your investment.

Secondly, I'm not sure it's a good idea to sink 50% of one's net worth into one asset class (XAU). What if XAU is in a bubble? It was a bubble before in the 1980's and even now still hasn't reached that peak in real terms OVER THREE DECADES LATER. Who is to say that that may not happen again. What if scientific advances enable such productivity increases that XAU actually declines against paper money?

Thirdly, if XAU's value keeps increasing exponentially, it will enable scientific alternatives to gold mining and exploration. It is already possible to create XAU in the lab using nuclear transmutation (modern alchemy). These procedures will become far more efficient and economical if XAU prices keep shooting up. What if a cheap technique is invented to convert (say) iron into XAU? The price of Gold will collapse overnight.

Just a few things to think about. I don't think Gold is a saviour. I'm not sure what is though. We live in very strange and difficult times with the rules constantly being re-written and the rugs being pulled out from beneath our feet by a witch's brew medley of Central Bankers, politicians and other similarly placed goons.

DhImAn said...

First of all, psychologically, it is impossible for anyone to commit to a 20 year time horizon.

You are right, one shouldn't commit to a 20 year horizon. Make that an indefinitely long horizon.

Have you thought about this - the truly rich families have inter-generational wealth? Us plebes are simply content with having our children start over from scratch each time.

If you accumulate over your lifetime, say 100 oz of XAU, your kids start off non-zero. Unless they are idiots, they could grow that over their lifetimes - pretty soon you will belong to a family with ancestral or inter-generational wealth too.

There is no medium better than gold to convey value over the extremely long time horizon - several generations.

That is simply too long a period of time to stomach massive ups and downs in your investment.

As measured how? In fiat money? Fiat comes and goes, over the span of generations, you can rest assured that the INR, the USD, the EUR and whatever else will be safely ensconced in the trash heap of history.

But an ounce of gold remains just that. A fixed mass of a rare and precious thing.

Secondly, I'm not sure it's a good idea to sink 50% of one's net worth into one asset class (XAU).

Ideally, you should have 95% or more of your wealth in precisely this asset class. Everything else is loose change, from which you would manage other expenses of life, including RE and so on. To get there you have to start somewhere. Start with 10% in gold if you want. Know where the goal lies though.

What if XAU is in a bubble? It was a bubble before in the 1980's and even now still hasn't reached that peak in real terms OVER THREE DECADES LATER. Who is to say that that may not happen again. What if scientific advances enable such productivity increases that XAU actually declines against paper money?

Hopefully your FDs (CDs) will allow you to use such a situation to your advantage, converting the now much appreciated paper (in relation to XAU) to accumulate more long term wealth.

What if a cheap technique is invented to convert (say) iron into XAU? The price of Gold will collapse overnight.

Track physics as part of your strategy then. Gold is at 1 ppm in the earths crust on average. One part per million. Meaning you have to mine and process a metric ton of earth to extract one tiny gram. Nuclear transmutation does exist, but the energy required is so high that it is all but impossible to conceive it as a source of significant quantities of the metal.

Of course, if physics does provide a cheaper alternative, then you change your strategy.

However, the probability of this happening is currently far lower than that of fiats collapsing.

I don't think Gold is a saviour.

Ask the Jews who fled Germany. Ask the Sindhi's who fled Pakistan. Ask any group of people who fled persecution, genocide, destruction of their currency and other political and economic ills what saved their posteriors.

They'll tell you, almost without exception, that it was gold.

I'm not sure what is though. We live in very strange and difficult times with the rules constantly being re-written and the rugs being pulled out from beneath our feet by a witch's brew medley of Central Bankers, politicians and other similarly placed goons.

I'm not sure what else is though. The rest of that paragraph, I totally agree with.

In the end, it appears you simply disagree with the 50% number. Like I said, choose your own number, and think long term. Strategy is a long term thing; tactics are short term. Wealth is built over the long term; only lotteries are won in the short.

This is why "nouveau riche" is a term of mild derision.

Ankan said...

Informative blog posts.

samix said...

It is already possible to create XAU in the lab using nuclear transmutation (modern alchemy)

Is there any Scientific paper that you can refer to, or is this just theoretical ?

Even if this technology becomes a reality, paper money is still going to be cheap as compared to this technology, with the potential of completely being lost or put on hold in times of war, natural disasters, so the then quantity of Gold will just revalue at best!

Anonymous said...

"Is there any Scientific paper that you can refer to, or is this just theoretical ?"

It's not theoretical. Wikipedia and Google are your friend. Look it up. It can't be that hard.

Anonymous said...

friends one line...if every pvt company/govt psu is going to bankrupt then what we sold to dollar lord?? is this is big scam 2g 3g cwg..every thing not solved by money,,
economy is fool game,
wake up the times is running,,its time to check the govt balance sheet? i suspect our country ruled by dollar now,,world bank is just giving dollar(paper)? we cannot eat it..so we want land,, farmers
now the all farmers are in debt because money paper game,,think once they sell land because they cannot pay debt..what debt my foot..if you are giving 10 rs loan and giving 5 rs for grains how it comes out of this game,,end he sold land for papers,,dollar lord want that,,i cannot write good English but i will bet the country on sold in name of economy !!!

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