Global Meltdown The Indian Impact .2008

I happened to run in to Nanubhai on Dalal Street. He was eating Khaman Dhokla in a farsan shop.
'Kame chho, Nanubhai?' (HOW ARE YOU NANU BHAI?
'Saru chhe.' (OK)
He was looking glum but gestured me to join him.

As I bit into the tasty dhokla with tangy chutney on the Friday afternoon, which was fast turning into a 'Manic Friday' as per Dalal Street lingo, hewas staring at the bull near the entrance, which overnight had become a Russian bear hugging everybody that passed the Street.

Nanubhai is a well-respected Dalal Street dada with an answer to every shareholder's query.

'What went wrong with Lehman Brothers?' I asked.

Lots of things. If the founder brothers, Henry, Emanuel and Mayer were alive this wouldn't have happened. Lehman Brothers were more than a 150-year-old company. But yet, it had no Lehman in the company. Such a situation can never happen in India.'

'Are you trying to tell me an Indian would have handled this differently?'

'Bilkul. If it was an Indian firm, Lehman Brothers would have fought as soon as their father died and divided in to three companies. They would have diversified into clothing, polystyrene, petrochemicals, vegetables, movie making, telecom, drilling oil, mobile phones, retailing, books, spectacles, gyms, wellness. In short, anything and everything under the sun. They would have made money for themselves and their shareholders.'

'But when there is massive failure there would be no option but to file for
bankruptcy?'

'Fail-wail chance hi nahin! Even if they encounter tough times, they would have friends like Mulayam Singh and Amar Singh to bail them out. They could finish off competition by befriending the finance minister and getting duties levied on the imports of competition. They would fund and befriend ruling parties. Unfortunately for Lehman Brothers in 2008, without a Lehman on the board or some Indian business brothers at the top, they couldn't openthe survival kit to stay afloat.'

As we were sipping double kadak chai, I asked: 'Did anybody anticipate this global meltdown?'

'Anticipate? Mazak chodo! I will tell you something. America has some 45 Nobel laureates in economics from 1970. From 2000 alone there are 15 Nobel laureates in econometrics sitting on company boards, treasury benches and in places like Harvard, Stanford etc. Kisiko kuch patha nahin tha! How come none of these had any inkling to the disaster awaiting the banking circles all over the world? Even the finance ministers of G-7 talked of strong 'fundamentals' of world economy around this time last year! Two months back the only topic they were discussing was the rise in oil prices.'

'What will happen if it goes all on like this?'

'Some American economist will study this, write a new a theory and get Nobel Prize next year, dekhna. Seriously, they forgot things like control, double check, systems-in-place etc and brought in vague words like Subprimes to give loans left, right and centre.'

'What will happen to the Indian market?'

'It's already having the Lehman Brothers' effect. Our finance minister seems to like the figure 60,000. While presenting the budget earlier in the year he pledged Rs 60,000 crore to write off loans given to farmers. Now he is pumping Rs 60,000 crore to help out the banks! I don't know what he will do next. He is again from Harvard!'

'What is the lesson to be learnt from the Lehman Brothers' episode?' I asked
as we were leaving.

Nanubhai took a spoonful of saunf and said: 'You know, we have an old elementary rule for keeping hisab-kithab. Divide a page into 'Left' and 'Right' with a line in the middle to denote Debit and Credit. In case of LB, as somebody said, nothing was right in the 'Left' and nothing was left in the 'Right',' concluded Nanubhai.

THIS WAS FORWARDED BY A MEMBER OF THE XNDDBIANS GROUP

The Sub Prime Factor

The sub prime crisis in the United States resulted in an outflow of funds to India pushing up the stock market indices in India and resulted in a bull run with the Sensex shooting upto unprecedented levels, 20k if i am right. This was towards the later part of 2007. The Reliance IPO happened which a huge success and this resulted in a lot of investments being tied up there. A lot of investors and specuators had their money locked up and had to sell other equities to make good on earlier commitments. This resulted in a slump in mid to late January 2008.
Now its the slowdown in the global economy that is everyone's worry. Petrol/Oil has crossed and gone much beyond the Us$100 a barrel, commodities too are at an all time high (due to food stock being diverted to bio fuels according to some people) and in India inflation is spiralling to 8 % and above, though at the time of writing it is at 7%. The RBI will curtail supply of currency by hiking the CRR and through other means which could mean a hike in interest rates. While the rupee appreciated vis a vis the dollar during the sensex bull run, it will come down due to the hike in oil rates and the higher import bill if food is imported. While the appreciating rupee will have hit the IT sector and other labour intensive export industries, there will be relief since the rupee will stabilise against the dollar with the inflation and import of foodstuff and oil.
But the scenario in India is not all that bullish as things stand.