A story of Three Musketeers: volatile currency and its risk on FIIs

Once upon a time there were three rich men in the United States of America. People nick named ‘Three Musketeers’. Three Musketeers were seeking opportunity to invest their capital in to emerging countries. One fine morning they heard about place called ‘India’. Three Musketeers decided to invest their USD    2, 00,000, a country called India. India’s currency is measured in rupee, widely known as Indian rupee or INR. Three Musketeers choose to invest in Indian secondary markets. To invest in Indian securities they need to convert USD to INR. Hypothetically, As per the 1^st May, 2001 1 USD=51 INR. Three Musketeers invest USD 2, 00,000 on 1^st May, 2001.

Three rich men done one mistake, they forget to calculate risk on currency fluctuation. They contact risk manager from such and such risk analysis firm. Hypothetically, Risk manager predicted two situations, to ensure whether Three Musketeer’s invested money is safe or not based on INR fluctuation.

Situation A:

First he assumed, on 2^nd May, 2001 INR appreciate up to 50 INR against 1 USD. Here we assumed that Three Musketeers investment has not done any profit or loss on their invested capital. Suppose if they want to pull out their invested money then they get USD 2, 04,000 (after converting it from INR to USD as per current currency rate). Without doing anything they earn USD 4,000 (ignoring all taxes).

Situation B:

Assumed, on 2^nd May, 2001 INR depreciate up to 52 IND against 1 USD. Here we assumed that Three Musketeers investment has not done any profit or loss on their invested capital. Suppose if they want to pull out their invested money then they get USD 1, 96,153 (after converting it from INR to USD as per current currency rate). Without doing anything they earn USD 3,847 (ignoring all taxes).

From both of these case situations we can conclude that how important is to understand forex market and currency fluctuation of domestic and international country.

In these hypothetically situations we neither took profit and loss in calculation nor levied taxes.

Just think and assume situation B, even if Three Musketeers make profit of INR 50,000, they occur loss of USD 2,885 (ignoring all taxes) if they pull out their money on 2^nd May, 2001.

Indian rupee depreciation and currency fluctuation are the biggest concern for Foreign Institutional Investors (FIIs).

For more on Indian rupee depreciation: Volatile currency, INR :

http://rutvij-bhutaiya.blogspot.in/2012/02/volatile-currency-inr.html

Analysis,Union Budget 2012-13

First union budget was presented by Mr. Chetty on 26^th November, 1947. From 1947 to 2012 union budget has sincerely followed its ‘parampara’ in Indian context.

Does Union budget 2012-13 satisfy, ‘I’ (taken from BRICS nations)?

From 2012 year India is entering into 12^th five year plan; focus is faster, sustainable and inclusive growth. What are those indications, which Mr. Mukherjee tried to reflect on 16^th March, 2012 for upcoming five year plan?

India share its prosperity with world through three main sectors, Agriculture (contributes 18%), Industry (26%) and Services (55%). In India inflation structure is largely driven by agriculture. To bring down inflation government introduce schemes for short term crop loans, cash inflow in rural banks and raised agriculture credit.

To maintain sustainability, India should sound strong in its financial sector. Funds inflow of 159bn, to capitalization of PSB, RRB and financial institutes. To improve investment; infra sector is open for foreign investment, QFI get green flag in Indian corporate bond market, STT cut from 20% to 0.1%, also by simplifying IPO process, to reach more retail investors.

Union budget 2012-13 gave some fresh oxygen to individual in direct tax, by basic exemption of I-T raised to 2 lakh from 1.8 lakh, additional deduction from saving bank account. These will results in high disposable income, which would impact on demand-driven growth.

To tap fiscal deficit government find direct way through raising indirect tax. Central excise duty and service tax increase by 200bps, this will increase inflationary pressure and delay in the interest rate cut. Custom duty remains unchanged, but to control domestic saving, custom duty on yellow metal has been doubled.

Major industrial impact,

On Automobile industry impact would be neutral, reasons are, excise duty increased by 2% but manufacturer would pass this burden to users, increase in import custom duty will force manufacturer to increase assembly activities in India, in-house R&D facilities gets benefits.

Power industry has positive impact, by exemption from custom duty on coal and LNG, will boost power production and reduction on withholding tax on interest by ECB from 10% to 5%, will increase funding.

Cement, Fertilizer and Metal & Mining industry would see positive impact, while other side Oil & Gas and Real Estate industry would see neutral impact. Parma will face negative impact by levy of Minimum Alternate Tax.

Union budget has its unique impact in each sector, this year for some it’s aesthetic and for some it’s dry.

India’s missile man, Dr. A.P.J. Abdul Kalam

14^th May, 2004, I met India’s missile man, Dr. Avul Pakir Jainulabdeen Abdul Kalam. Till that date I don’t know anything about this person. But since that Friday he became my favorite leader.  On that Friday afternoon Dr. Kalam shared his thoughts with us at Rashtrapati Bhavan, New Delhi.

Dr. A.P.J. Abdul Kalam was born on 15^th October, 1931 at Rameswaram, Tamil Nadu. He was the President of India from 25^th July, 2002 to 24^th July, 2007. Dr. Kalam is renowned aerospace engineer, professor of Aerospace engineering and first chancellor of Indian Institute of Space Science and Technology Tiruvananthapuram. He is the only person who gave India “Vision 2020”. He is a great and stalwart leader.

Leadership practices by former President of India.

What are the models that leaders built to succeed in its term? In Dr. Kalam’s way it is creativity. Creativity brings knowledge in society, creativity encourages Innovative thinking. It changes person’s ability to think and generate ideas, like Google, productivity of creative thinking.

Second, model he talks about Law of Development, which stand on three pillars; enable resource to develop nation, technology, productivity. In technology he gave weighted to communication and importance of communication. Basic technology and Science is vital for any growth targeted sectors. Technology has two sides; it can lead to economic prosperity and create capability for national security.

Third, he added society grid. Society grid divided in four parts; Knowledge grid, Health grid, Rural grid and Legal grid. This grid system will bring prosperity to nation. It also adds value to nation in formal or informal way.

Dr. Kalam’s name is permanently added in the list of India’s great visionaries. In his words, Leader must have a vision for Organization. He is leading ‘Vision 2020’ for India, as a developed country by the year 2020. In that vision he included Agricultural and food procession, Infrastructure, Water mission, Sustainable Rural Development through PURA, PURA (Providing Urban Amenities in Rural areas) mission, Education development. He wants to make India Energy independent country by 2030, with the help of solar energy, Nuclear energy and Bio fuel energy.

As a leader, one should challenge the processes. Dr, Kalam says, ‘A leader must know how to celebrate the successes and manage the failures.’ Here he gave message, to handle success and more importantly how to manage failures. Because as a leader he/she has to come across failures in any field, and how he/she manages and bypass that failure without any negative effect on his team’s performance and productivity. In the challenging process, leader must have courage to take decisions. And if decision went wrong he has been able to take responsibilities. 

Mr. Kalam is a kind of leader, who believes in creating opportunities and creates leadership.  As per his view a leader must be able to explore uncharted areas. A leader must think towards welfare of society, and must have creative ideas to explore new opportunity and paths for people.  A leader should have nobility in management, when one is leader he do not thinks only about his/her own, but he has to thinks for management and organization’s purpose with people in mind.

A leader should be enough capable to motivate other peoples and encourage hearts. Here Dr. Kalam tells about how he was inspired by this role model leaders, how he studied and lived with great scientists. As he was keen to learn about Space science and technology leadership qualities that underscore the significance of Space and Technology in the developed nation.

He motivates younger generation through the example of his idol Dr. Vikram Sarabhai. And from live examples, how Dr. Sarabhai and his team launched satellite and create satellite vehicle launce programmer in Indian soil. And how space applications has become a part of our daily life and how it is changing the map of India in Global view.

“Learning gives creativity,

Creativity leads thinking,

Thinking provides knowledge,

Knowledge makes you great.”

                                                                                  _ Dr. A.P.J. Abdul Kalam