Wednesday, October 08, 2008

Credit Squeeze - India story

The whole of last 2 weeks there have been repeated rumours of banks collapsing, restriction in trading amongst banks and now finally we hear that banks have stopped lending to each other. No indicator can really prove this because the inter bank rate would be on recorded transactions, whereas if there are no trades there is no price.

I generally believe that the Indian Banking system is sound, mostly becase of tardiness and regulation rather than anything else, but I would to know what is happening to those currency hedges sold at USD/INR at 40? Do any of the banks have an exposure on this?

Every body is sitting tight on liquidity right now and will wait for the tide to pass. Whats the best thing to do?

1) Put money into FDs, post tax 7-8% is not bad eh?
2) Buy physical gold - it cant get stolen you see
3) Go on a holiday, your money will anyway buy you more today.
4) Stay in cash as yet

Q 2 earnings, holy mother of god.. now thats coming. Consider this compared to last year;

Rupee: Down an average 10%
Interest rates: Up an average 2-5%
Commodity (over the last quarter): Up 2-5%
Wages (the wage hikes would have become effective towards end of 1 Q and continued in Q2) - 5%

Prepare for the earnings moderation ahead.

Seems like a buy signal doesnt it ? Sure does, but might as well wait for a bit of stability, you are not retiring in 2 months are you?

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