Current market dynamics are interesting. The rupee has fallen considerably. In the news, property developers suggested that NRIs have shown interest in investments. Putting myself in the shoes of an NRI investor, it is golden opportunity. Couple of months back, at exchange rate of Rs.52, a property worth 5Cr. was costing about $962,000 and at current exchange rate of Rs 60 is costing about $833,000. This gives straight discount of $129,000, a price reduction of 13%. And when the exchange rate goes back to Rs. 52, the rate of return will be 15%, and this is without any price increase in the property value.
With the elections on horizon, question is, whether the property prices will go up. And what will restore the exchange rate? One of the theory is that, rupee is depreciated due to FIIs pulling out money. I beg to differ. The real reason for rupee depreciation is the balance of payment situation. This situation has worsen in last few months. Finance ministry along with RBI knew about the issue for sometime. They blamed it on people importing gold. The government tried to stem the tide by increasing the import duty multiple times on the gold imports. Well, you know the human psychology, people like to own more valuable stuff than the cheaper. As the gold became expensive, more were buying it. Check out when the prices of sugar or onion goes through the roof.
Now with rupee falling so much, who would want to get back and invest. What if the rupee slides further? Question is how to address so that rupee does not fall further. Situation is something like this, when a person weak finance situation, how can he get further loan? And how can the person tell the loan officer that his finances will be better in future? Based on the history of the person, the loan officer may deny the loan or the person will have to pay more interest. And there is no guarantee that the person will be good on the promise, particularly when the person has taken similar life lines in past well.
I guess, the approach of the government is that when businesses are making money, something must be really wrong, say telecom or aviation. And then instead of having the golden egg, let's cut the hen. And also open the doors for foxes to hound. In earlier term, the government was victim of the coalition partners. Other than few corruption scandals by the minister, this term, not sure what has gone really wrong, And finance minister is suggesting to US businesses that the system will be better. The trust is always reflected in dealing with someone, whether it is money or something else. Banks lineup to give money to person more trustworthy, and others have to lineup to get the money. Has the property developer thought of other investors who have invested in past for the same projects and have already lost the money? We believe in making history and not learning from it.
