India: Investors looking for bailoutI 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 bailout 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 selfserving advise to our regulators and finance officials by the 'financial intelleigentsia' of the Developing world. Credit SuisseIndia StrategyIntervention 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 shou ld consider on forex and stock market fronts ﾃΡｿｽ Marketeconomy circularities have begun to engulf India. We believe that strong governmentled efforts are needed to break the most vicious of circularities even as they go against the grain of many longstanding or muchdesired rules of the system.ﾃΡｿｽ 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. ﾃΡｿｽ Equity market related losses have turned selfperpetuating to a degree because of the leverage with some of its largest investors. Attendant wealth destruction threatens to severely hurt IndiaﾃΔﾃ｢窶址ﾃ｢窶椶s investment driven growth; high and rising wealth of en trepreneurs was the driving force behind the undertaking of criticallyneeded 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 ﾃΡｿｽ 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 fastgrowing economy was provided by noncredit 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ﾃΔﾃ｢窶址ﾃ｢窶椶 average to ensure that credit quality and economic growth remain relatively stable. ﾃΡｿｽ Government deficits are high and they should be brought down mediumterm. However, to ensure that future revenues remain reasonably strong, the economy perhaps needs a fiscal support in the form of far higher governmentled investment activities. A fiscal deficit expansion through increase in public sector investments could lead to many more improvements later.ﾃΡｿｽ All the issues involve policy steps that could cause problems long term if abused. They run nearterm risks too ﾃΔﾃ｢窶址ﾃ｢竄ｬﾅ 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.Lee's Dhaba
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