If one mask is torn off, then let everyone be unmasked.



S&P recently released it ‘Ratings Direct’ on India with a title –“Will India Be The First BRIC Fallen Angel?” The S&P which thinks of itself as the ‘Hand of God’ and it is quite true. The rating agencies like S&P, Moody’s and Fitch ( a.k.a ‘The Big Three’) control the investors sentiment and manipulate it. The investors look up to these agencies because these are considered to be most ‘reliable’ rating agencies in the 
world and because of this faith ‘The Big Three’ have sustained over the years.

Now is a time where everyone needs a little guidance. No one knows what is going to happen. It is too uncertain for an investor to invest anywhere. With Spain/Italy and of course Greece all in a big ‘Financial Fiasco’ (which might eventually engulf the whole of Europe), the US economy downgrading and the magical futuristic ‘Yuan’ being released from the clutches of the Dragon, the world economics is uncertain.  In such dark times the investors search for a knight in shining armour who would lead them to the path of safe and secure investment and this is where these agencies come in.

These agencies have defined the fate of many companies and countries, by controlling their ratings and presenting those ratings in the international markets. Now, S&P has come up with a new ‘Ratings Direct’ discussing what S&P feels about India and it being the first ‘Fallen Angel’ out of the BRIC nations. This report talks about how India has a BBB- rating which is the lowest (in BRIC) and how it is the only one with a negative outlook. This document has taken in consideration every statistic which was available and with certain amount of speculation has presented a brilliant document from their side. The only problem is that is everything so simple?

India is the largest Democracy in the world. With a coalition government at the Centre each decision which is passed takes a lot of time, as cited in the report (the POSCO case). There have been innumerable policy changes since 1991 and we will not roll back those and even if we do, it will be to protect ourselves and it is duly justified because the United States itself has done things like that and we have stood here watching them tightening their leach on the market.

It has been mentioned that our system of government has created a lot of problems to roll out Economic policies. Agreed, our governmental does create problems and the policies need to be changed but everything takes some time here. We can’t have the United States’ Bi-Party system neither can we follow the French system where there are two election stages where in the first level the minority parties are flushed and the second level is for the two major parties to fight and decide. All of these systems cannot exist in India because our level of ethnic diversity is just really vast. Hence the current system stands at its best.

People are talking about the depreciation of Rupee, Why is it happening? It is because of the simple fear phenomenon that is prevalent in the market now days. People are pulling out of the Rupee because of the fact that they are afraid of losing their money and where are they investing this money? Yes, it is the Dollar. Now everyone back in ’08-’09 was cribbing about the Dollar being so unstable and we should all shift to Yuan and be safe. Now was their turn to revert back their investments from Rupee to some other currency (except the Dollar, as it proved to be fatal last time) and be all safe. But what they did was the same thing as before, the reverted to the USD making it stronger while weakening the Rupee simultaneously. This along with the pullout of FII’s (going upto 1 trillion dollars now), Widening of Current account Deficit, Reduction in Capital follows has led to this situation and all of this is primarily due to ‘Fear’.

I completely agree to the facts which are mentioned but not the speculation based on them. Plus the political scenario that has been mentioned is correct too but why don’t they publish a similar ‘Ratings Direct’ mentioning the political situations of other nations of the world?

 Starting with China and its high internal instability and the Yuan which was speculated to be of a much higher value than its actual market value which came out after ‘The Dragon’ loosened its hold on it. Russia, where there are protests against the newly elect president everyday, United Kingdom where the existing parts of it wish to separate from it (Wales and Scotland), Europe where Italy and Spain are also asking for major bailouts with Greece. It was always known that the Spanish financial system was weak and shall fall soon, then wasn’t a report published then to tell the investors the truth about the future free fall what Spain would take part in? Why isn’t the fact about how Germany shall recover all the money that the falling European nations owe to it? And what will be its effect? Why aren’t the international organizations pointing out that there might not be an end to Europe freefalling?

Don’t these factors affect the so called ‘Ratings’ by these organizations? Great economists back in 2007-2008 had foreseen and declared that there will be a ‘Double Dip’ recession in the near future, then why weren't reports on that released so as to do something to avoid the current scenario?

India is facing a crisis and so is the whole world. We need to understand this and then act. Each report makes a difference and everything should be uncovered but if you take off a mask here, then let everyone be unmasked.

Comments

  1. Amazing work brother!
    You pen down such a complicated set of things in such a simple way. Awesome =D

    ReplyDelete
  2. Ok i aint gonna start a war here :P. I recommend you read something on Currency Manipulations. China has been depreciating its currency on purpose and so has Brazil. Now we are crying when our currency is depreciated. This shows that although we Belong to the BRIC group you cant really compare us to them cuz of the different type of economy's.
    Coming to the fear and investor sentiment. S&P came out with the article in June. The rupee has depreciated 18%, this started in March. It is not responsible for the fear.
    The 1 trillion dollar figure you are talking about is just for the month of June. Account for May and April.
    Moreover account for the inflow(Yes there are foreign investors entering) in our Debt market. This just proves that the faith lost is cuz of specific reasons.
    The reason for the start of the rupee fall was majorly cuz of our oil import problem and the sanctions on Iran.

    ReplyDelete
  3. Haha.I'd always love feedback from you.
    Again, China 'was' devaluing not depreciating. The main difference is that Devaluing is done by the government whereas depreciation is by the market forces, so no country can actually depreciate but can always devalue. Coming back to their 'devaluation' that was for their production part of the Economy which is a major part of both the economies.
    Agreed, we're in a totally different league in terms of type of economies and the products and services produced although all of us fall into the group of countries developing at a very fast rate.

    I'm not blaming the S&P report for the depreciation but the fear in general, like allover the world.
    Infact right not, I'm not blaming S&P for anything, except that they should uncover everyone.
    That $1 trillion is just a figure. To make people understand the gravity of the situation. Although yes, I would mention other details in my next one. :)

    I know there are but the ratio of incoming to outgoing is less and people are entering into our debt market is because of other factors.

    Iran was there but then our policies and us changing our stance toward Iran changed a lot too.

    Thanks a ton for the Comments. :)

    ReplyDelete
  4. Yes my bad, devaluing is what i meant :)
    And Yes trust me FDI-Retail falls in line FDI-Aviation wont be far behind and we will recover.

    ReplyDelete

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