India: Investors looking for bailout

India: Investors looking for bailout

I have reproduced a Credit Suisse advisory to the Goverment of India below. Instead of a safe harbor statement, Credit Suisse should have added:

We are long Indian stocks…our investors are long stock….we want a bail-out now that we are losing money because of stupid leverage and buying huge amounts of illiquid stocks.

And NO, we would not have shared the profits with the Indian government if the stock had gone up or we had been smart enough to get out when the going was good.

Expect a lot more self-serving advise to our regulators and finance officials by the ‘financial intelleigentsia’ of the Developing world.

Credit Suisse

India Strategy-Intervention Required

GOI needs to intervene in the FX markets by defending the Rupee, create a Sovereign Fund To Buy distressed stocks, Increase Spending irrespective of missing short term targets on Fiscal Deficit, Aim for a higher growth than the average of the past 4 years.

Part 1: What authorities should consider on forex and stock market fronts

  1. · Market-economy circularities have begun to engulf India. We believe that strong government-led efforts are needed to break the most vicious of circularities even as they go against the grain of many long-standing or much-desired rules of the system.
  2. · In this first part, we discuss the first two of the four circularities that need attention. We have long believed that the more the exchange rate is allowed to weaken, the more loss of confidence and outflow it could give rise to. As a result of many recent local and global currency market events, we hope that the authorities consider an overt and aggressive defense of the rupee now.
  3. · Equity market related losses have turned self-perpetuating to a degree because of the leverage with some of its largest investors. Attendant wealth destruction threatens to severely hurt India’s investment driven growth; high and rising wealth of entrepreneurs was the driving force behind the undertaking of critically-needed large investment projects. We think that the government should consider starting a large enough fund that directly purchases equities in the equity market.

Part 2: What authorities should consider on monetary and fiscal fronts

  1. · In this second part, we discuss the last two of the four circularities that need government attention. Last year, nearly 50% of incremental financing of the fast-growing economy was provided by non-credit related sources. With most of these sources drying up, the authorities need to consider encouraging credit growth to climb to a rate higher than the last few years’ average to ensure that credit quality and economic growth remain relatively stable.
  2. · Government deficits are high and they should be brought down medium-term. However, to ensure that future revenues remain reasonably strong, the economy perhaps needs a fiscal support in the form of far higher government-led investment activities. A fiscal deficit expansion through increase in public sector investments could lead to many more improvements later.
  3. · All the issues involve policy steps that could cause problems long term if abused. They run near-term risks too – if they fail in generating stability, the confidence loss could lead to more severe economic contraction. Yet, we believe that these steps or things similar need at least a consideration given where we have come.

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