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THE FINANCIAL CRISIS IN INDIA REDUX
                              BarCamp Delhi 28th Feb., 2009
                                   P. Jain and D. Shenoy

Saturday, February 28, 2009
INTRODUCTION TO THE
                         FINANCIAL CRISIS

    • The  worst crisis since the Great Depression
    • Sub-Prime Mortgages
      • Loans extended to people and business with less than stellar credit
        worthiness
      • Value of assets dropping quickly leaving negative equity
    • Credit
      • Scare of loan losses spreads beyond sub-prime mortgages




Saturday, February 28, 2009
FAMOUS LAST WORDS



    • Bernanke    says the housing sector quot;is a concern, but at this point we
       don't see it as being a broad financial concern or a major factor in
       assessing the course of the economy.quot; - Feb. 2007




Saturday, February 28, 2009
OCT 2008 - TODAY

    • President Obama Elected and Sworn In
    • Oil and commodities spin into freefall
    • Indian inflation drops to under 4%
    • Indian GDP growth slowing rapidly
    • Over 500,000 Indians lose jobs
    • US Unemployment at an all time high
    • US New Home sales at an all time low
    • UK, Europe, US all in a deep recession



Saturday, February 28, 2009
US STATS

    • 14  banks have failed in the US in 2009 alone. Not counting last Friday
      (Bank failure day)
    • Real estate ventures have declared bankruptcy, including a Donald
      Trump Casino firm (so don’t bother buying his book)
    • US home prices down 25-45% with no buying is in sight
       • And this is at mortgage rates of 4.5%
    • Sales were at all time low (since 1960s) in Jan 09
    • Home inventory = 24 months of supply
       • Measured by current sales volume
       • Not counting some withheld foreclosures etc.


Saturday, February 28, 2009
SOME INDIAN STATS


    • $16  Billion outflow from India in 2008
    • Inflation at almost 13%, now at below 4% - WHY????
    • Indian Deficit grows to 6%
    • Nearly 75% of all Indian Gov’t borrowing is used to pay for expenses
    • Sensex down ~50% in 2008
    • Sensex up ~50% from 2004




Saturday, February 28, 2009
MORE STATS

    • GDP    growth slowing – 5.3% in the quarter ending Dec. 2008
    • Manufacturing dropping dramatically
    • Job losses are serious
       • 1.5 million jobs to be lost just in the export sector from October 08-
         March 09
       • 200,000 jobs lost in Surat, 500,000 in the diamond industry in the
         Q3
       • 93% of our workforce has no social security coverage
       • 75K jobs at risk in the auto ancillary units
       • And the loads of downward salary revisions, “variable” pay etc.


Saturday, February 28, 2009
WHY SHOULD I CARE?

    • SENSEX    goes from under 5,000 in early 2004 to a peak just above
      21,000 in Jan. 2008 to 8,441 on Nov. 20th, 2008 and 88432 on Feb.
      20th, 2009
    • Large firms are laying people off, slowing hiring, and decreasing
      spending
    • Many expats are being recalled home
    • INR hits an all time low against the US Dollar
    • Gold is skyrocketing



Saturday, February 28, 2009
INDIA

    • At  least one bank or real estate player likely to fail, a big one
    • Credit card defaults, Home loan defaults and other commercial NPAs
      are just getting started
    • Fiscal situation is tight
       • While there are good solutions, political bias will be towards populist
         measures, no reward
         • Like DA raise by 22% for govt. employees
    • We have no data collection standards, lack of transparency delays
      recovery


Saturday, February 28, 2009
DEFLATION




                              Chart by @deepakshenoy


Saturday, February 28, 2009
WHY IS DEFLATION A
                                  PROBLEM?

    • We’ve  never dealt with it since the 1930s and we don’t know how to
      handle it
    • Interest rate cuts don’t work very well in the absence of a robust
      bond market
    • You can’t cut interest rates below zero (See the US and Japan)
    • USD/INR + Crude/Other prices not controllable
    • Price drops take MUCH longer to reflect effectively than rises




Saturday, February 28, 2009
IIP STATISTICS




                              Chart by @deepakshenoy




Saturday, February 28, 2009
INDIAN REAL ESTATE

    • Flippingis dead (or it should be)!
    • Affordability for the average person?
    • Affordability for the more privileged person?
    • Standard Charter and Citibank Refuse Loans to RE Developers – 09
      Oct. 2008
    • Real Estate oversupply is obvious in Gurgaon, but quite as bad in
      Bangalore, Hyderabad, Mumbai, Chennai
    • South Delhi is still relatively more expensive than London, Tokyo, Hong
      Kong, and Manhattan – WHY?!??!?!?!?!?


Saturday, February 28, 2009
RETAIL SLUMP




Saturday, February 28, 2009
STARTUP FUNDING -
                              FUHGEDDABOUDIT
    • Indian  Investors are getting even more skittish
    • VC game is a long-term play
       • Can VCs continue to provide returns attractive to their investors
       • Can investors wait for the next exit window?
       • Indian VCs never looked at early stage cos. in good times.
    • VCs are advising portfolio companies to come up with revenues
      quickly and be prepared for a major dry spell
    • Many VCs will quit and move to “angel” funding – realistically, they will
      try to fund growth only


Saturday, February 28, 2009
STARTUP FUNDING



    • Callyour parents, siblings, cousins, uncles, aunts, friends, enemies!
    • Get a tin cup and hit the most lucrative corner before someone else
      does
    • Bootstrap if you have the ability to get a client




Saturday, February 28, 2009
WHAT’S NEXT

    • We’re   not even close to the end of the meltdown
    • We’re not even in the middle of it
    • There is tremendous amount of denial on the street
      • Saal-tak aa jaayega wapas
      • Our banks are safe
      • We don’t have subprime lending
      • Real estate prices always go up, Stock market is great in the long
        term
    • This is all a load of bull (and far from a Bull Run)


Saturday, February 28, 2009
BRACING FOR IMPACT

    • Bailouts cause moral hazard.
    • Government revenues dwindle, tax rates will increase
    • Expect a black-money-amnesty scheme
    • Keep that job, look for one, or Start a business and create jobs.
    • Accept that with deflation your salary will not increase, or you
      revenues will not increase – it may even decrease!
    • Stay away from get-rich-quick schemes, as frauds roam the streets in a
      recession
    • Stay safe. Umemployment breeds violence, hatred, and “moral police”.
      Learn to defend yourself.
Saturday, February 28, 2009
LIGHT AT THE END OF THE
                        TUNNEL
    • There         is always some opportunity

    • There         is always some money to be made, even in a downturn

        • Ex. Short           selling stocks, Food, Essentials, Alcohol, Entertainment

    • There    is no money in the Internet in India. Give it up! There is money offline, though,
       lots of it.

    • Some    of the rural public didn’t know there was a boom on. For them it’s always a
       recession.

    • Some  of the urban public don’t know there’s a recession. For them it’s always a
       boom – wake up and smell the coffee!

Saturday, February 28, 2009
DISCUSSION




Saturday, February 28, 2009
(RE)SOURCES

    • BusinessWeek, What    will the crisis mean for venture capital?, Sarah
      Lacy, 09 Oct. 2008 http://bit.ly/3A43xX
    • Yahoo Finance Charts and Historical data
    • Meltdown 2008, TerranceDC, Oct. 2008, http://bit.ly/4gRiwh
    • Sequoia Capital Presentation to Portfolio Companies - http://bit.ly/
      16F8WK
    • Google
    • RBI Website
    • Teknatus Blog http://www.teknatus.com/blog/pjain

Saturday, February 28, 2009
(RE)SOURCES CONT’D



    • http://bit.ly/5IkPt       - Duvvuri Subbarao, RBI Governor

    • Title
          Picture Under CC License by Wen-Yan King - http://
       www.flickr.com/photos/medapt/407745883/




Saturday, February 28, 2009
THANKS!

       Deepak Shenoy
          http://blog.investraction.com
          Email: deepakshenoy at g mail dot com
          Twitter: @deepakshenoy
       Pankaj Jain
          http://blog.linosx.com
          Email: pjain at teknatus dot com
          Twitter: @pjain


Saturday, February 28, 2009

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The Financial Crisis in India Redux

  • 1. THE FINANCIAL CRISIS IN INDIA REDUX BarCamp Delhi 28th Feb., 2009 P. Jain and D. Shenoy Saturday, February 28, 2009
  • 2. INTRODUCTION TO THE FINANCIAL CRISIS • The worst crisis since the Great Depression • Sub-Prime Mortgages • Loans extended to people and business with less than stellar credit worthiness • Value of assets dropping quickly leaving negative equity • Credit • Scare of loan losses spreads beyond sub-prime mortgages Saturday, February 28, 2009
  • 3. FAMOUS LAST WORDS • Bernanke says the housing sector quot;is a concern, but at this point we don't see it as being a broad financial concern or a major factor in assessing the course of the economy.quot; - Feb. 2007 Saturday, February 28, 2009
  • 4. OCT 2008 - TODAY • President Obama Elected and Sworn In • Oil and commodities spin into freefall • Indian inflation drops to under 4% • Indian GDP growth slowing rapidly • Over 500,000 Indians lose jobs • US Unemployment at an all time high • US New Home sales at an all time low • UK, Europe, US all in a deep recession Saturday, February 28, 2009
  • 5. US STATS • 14 banks have failed in the US in 2009 alone. Not counting last Friday (Bank failure day) • Real estate ventures have declared bankruptcy, including a Donald Trump Casino firm (so don’t bother buying his book) • US home prices down 25-45% with no buying is in sight • And this is at mortgage rates of 4.5% • Sales were at all time low (since 1960s) in Jan 09 • Home inventory = 24 months of supply • Measured by current sales volume • Not counting some withheld foreclosures etc. Saturday, February 28, 2009
  • 6. SOME INDIAN STATS • $16 Billion outflow from India in 2008 • Inflation at almost 13%, now at below 4% - WHY???? • Indian Deficit grows to 6% • Nearly 75% of all Indian Gov’t borrowing is used to pay for expenses • Sensex down ~50% in 2008 • Sensex up ~50% from 2004 Saturday, February 28, 2009
  • 7. MORE STATS • GDP growth slowing – 5.3% in the quarter ending Dec. 2008 • Manufacturing dropping dramatically • Job losses are serious • 1.5 million jobs to be lost just in the export sector from October 08- March 09 • 200,000 jobs lost in Surat, 500,000 in the diamond industry in the Q3 • 93% of our workforce has no social security coverage • 75K jobs at risk in the auto ancillary units • And the loads of downward salary revisions, “variable” pay etc. Saturday, February 28, 2009
  • 8. WHY SHOULD I CARE? • SENSEX goes from under 5,000 in early 2004 to a peak just above 21,000 in Jan. 2008 to 8,441 on Nov. 20th, 2008 and 88432 on Feb. 20th, 2009 • Large firms are laying people off, slowing hiring, and decreasing spending • Many expats are being recalled home • INR hits an all time low against the US Dollar • Gold is skyrocketing Saturday, February 28, 2009
  • 9. INDIA • At least one bank or real estate player likely to fail, a big one • Credit card defaults, Home loan defaults and other commercial NPAs are just getting started • Fiscal situation is tight • While there are good solutions, political bias will be towards populist measures, no reward • Like DA raise by 22% for govt. employees • We have no data collection standards, lack of transparency delays recovery Saturday, February 28, 2009
  • 10. DEFLATION Chart by @deepakshenoy Saturday, February 28, 2009
  • 11. WHY IS DEFLATION A PROBLEM? • We’ve never dealt with it since the 1930s and we don’t know how to handle it • Interest rate cuts don’t work very well in the absence of a robust bond market • You can’t cut interest rates below zero (See the US and Japan) • USD/INR + Crude/Other prices not controllable • Price drops take MUCH longer to reflect effectively than rises Saturday, February 28, 2009
  • 12. IIP STATISTICS Chart by @deepakshenoy Saturday, February 28, 2009
  • 13. INDIAN REAL ESTATE • Flippingis dead (or it should be)! • Affordability for the average person? • Affordability for the more privileged person? • Standard Charter and Citibank Refuse Loans to RE Developers – 09 Oct. 2008 • Real Estate oversupply is obvious in Gurgaon, but quite as bad in Bangalore, Hyderabad, Mumbai, Chennai • South Delhi is still relatively more expensive than London, Tokyo, Hong Kong, and Manhattan – WHY?!??!?!?!?!? Saturday, February 28, 2009
  • 15. STARTUP FUNDING - FUHGEDDABOUDIT • Indian Investors are getting even more skittish • VC game is a long-term play • Can VCs continue to provide returns attractive to their investors • Can investors wait for the next exit window? • Indian VCs never looked at early stage cos. in good times. • VCs are advising portfolio companies to come up with revenues quickly and be prepared for a major dry spell • Many VCs will quit and move to “angel” funding – realistically, they will try to fund growth only Saturday, February 28, 2009
  • 16. STARTUP FUNDING • Callyour parents, siblings, cousins, uncles, aunts, friends, enemies! • Get a tin cup and hit the most lucrative corner before someone else does • Bootstrap if you have the ability to get a client Saturday, February 28, 2009
  • 17. WHAT’S NEXT • We’re not even close to the end of the meltdown • We’re not even in the middle of it • There is tremendous amount of denial on the street • Saal-tak aa jaayega wapas • Our banks are safe • We don’t have subprime lending • Real estate prices always go up, Stock market is great in the long term • This is all a load of bull (and far from a Bull Run) Saturday, February 28, 2009
  • 18. BRACING FOR IMPACT • Bailouts cause moral hazard. • Government revenues dwindle, tax rates will increase • Expect a black-money-amnesty scheme • Keep that job, look for one, or Start a business and create jobs. • Accept that with deflation your salary will not increase, or you revenues will not increase – it may even decrease! • Stay away from get-rich-quick schemes, as frauds roam the streets in a recession • Stay safe. Umemployment breeds violence, hatred, and “moral police”. Learn to defend yourself. Saturday, February 28, 2009
  • 19. LIGHT AT THE END OF THE TUNNEL • There is always some opportunity • There is always some money to be made, even in a downturn • Ex. Short selling stocks, Food, Essentials, Alcohol, Entertainment • There is no money in the Internet in India. Give it up! There is money offline, though, lots of it. • Some of the rural public didn’t know there was a boom on. For them it’s always a recession. • Some of the urban public don’t know there’s a recession. For them it’s always a boom – wake up and smell the coffee! Saturday, February 28, 2009
  • 21. (RE)SOURCES • BusinessWeek, What will the crisis mean for venture capital?, Sarah Lacy, 09 Oct. 2008 http://bit.ly/3A43xX • Yahoo Finance Charts and Historical data • Meltdown 2008, TerranceDC, Oct. 2008, http://bit.ly/4gRiwh • Sequoia Capital Presentation to Portfolio Companies - http://bit.ly/ 16F8WK • Google • RBI Website • Teknatus Blog http://www.teknatus.com/blog/pjain Saturday, February 28, 2009
  • 22. (RE)SOURCES CONT’D • http://bit.ly/5IkPt - Duvvuri Subbarao, RBI Governor • Title Picture Under CC License by Wen-Yan King - http:// www.flickr.com/photos/medapt/407745883/ Saturday, February 28, 2009
  • 23. THANKS! Deepak Shenoy http://blog.investraction.com Email: deepakshenoy at g mail dot com Twitter: @deepakshenoy Pankaj Jain http://blog.linosx.com Email: pjain at teknatus dot com Twitter: @pjain Saturday, February 28, 2009

Hinweis der Redaktion