Indian exporters stand to gain as the rupee fetches more greenbacks while importers will have to pay more to buy their goods. Those receiving remittances are getting better value while consumers are likely to lose more as petrol prices may go up soon on rising import costs. Overseas travel and studying abroad will be more expensive.

Experts say the worst is still not over. The rupee might touch Rs 55 per US dollar. They say it will help if the government steps in to stop the fall.

With economic uncertainty across the world, and the Indian industrial growth slowing down, the rupee tailspin could not have come at a worse time. The Indian rupee tanked 52 paise to a record low of Rs 53.75 per US dollar in early trade on Wednesday, a day after breaching the Rs 53 per dollar-mark, on increased demand for the American currency from banks and importers and sustained foreign capital outflows amid an economic slowdown.

Dollar gains against the euro and other currency rivals overseas amid the lingering euro zone debt crisis put pressure on the Indian rupee. In addition, continued foreign capital outflows amid a slowdown of the domestic economy contributed to the weak rupee sentiment.

Furthermore, increased demand for the U.S. currency from importers and banks led to the fall in the rupee value in early trade, the Forex dealers added. The domestic currency had depreciated by 39 paise to close at Rs. 53.23/24 per dollar in the previous session after witnessing an all-time low of Rs 53.51 as the dollar strengthened in markets worldwide.

Meanwhile, the BSE benchmark Sensex recovered by 65.19 points, or 0.41 per cent, to 15,937.32 in opening trade on Wednesday.

The government is likely to go ahead with it, since there was hardly any political opposition to it. This means that although global supermarket giants Walmart, Tesco and Carrefour may not be able to set up deep-discount stores in India yet, others such as iconic furniture brand Ikea and apparel retailer GAP — that sell just one brand under their roofs — will gain entry.

This will pave the way for marquee brands such Prada, Ikea, GAP and sports goods majors to set up exclusive outlets, managed and owned entirely by them, in India. In the past five years, under the current regime of 51% FDI in single-brand retail, FDI of only $44.45 million (R231 crore) came to India, constituting barely 0.03% of total FDI inflows.

Globally, single-brand retail follows a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment. The current cap of 51% confers a right to pass all ordinary resolutions while enhancing the cap to 100% will confer full ownership and control.

Finance minister Pranab Mukherjee’s statement on Wednesday, suspending 51% FDI in multi-brand retail, steers clear of any mention on 100% FDI in single-brand retail. Under the new policy regime for single-brand retail, products to be sold should be of a ‘Single Brand’ only. These should be sold under the same brand internationally — implying that products should be sold under the same brand in one or more countries other than India. BJP leaders are privately saying that single-brand retail is not as “dangerous” for the domestic retailer or producer as it pertains to niche products that do not fundamentally alter the retail market, thus showing greater flexibility on this than on multi-brand retail, which, they claim, will be a disaster.

As a result, Citi will book a charge of approximately $400 million in the fourth quarter of this year due to severance payments and other expenses associated with the layoffs, he said speaking at the Goldman Sachs Financial Services Conference in New York. Financial services faces an extremely challenging operating environment with an unprecedented combination of market uncertainty, sustained economic weakness in the developed economies and the most substantial regulatory changes seen in recent times.

These trends will likely significantly affect the competitive landscape in the coming years. Citigroup posted a 74 percent increase in third-quarter profit, aided by a $1.9 billion accounting gain that softened the impact of lower trading and investment-banking revenue. Excluding the accounting figure, the bank’s revenue for the period fell 8 percent to $18.9 billion.

Most of that accounting gain stemmed from a credit- valuation adjustment, or CVA. This required Citigroup to write down the value of its debts amid a widening of the bank’s credit spreads, the extra yield investors demand to own a corporate bond rather than US Treasuries. The spreads have tightened this quarter, if the fourth quarter ended yesterday, the bank would post a $200 million negative CVA, compared with a $1.9 billion gain in the previous quarter.

Citigroup’s lending business in its securities and banking operation also would record a loss of about $300 million tied to hedges if the quarter ended yesterday.

Growth is disappearing, the rupee is in disarray, and inflation is stuck at near-record levels. Investor sentiment has gone from cautious to outright scared.
India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the Reserve Bank of India with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.
If the RBI is too timid, it risks adding fuel to the ire of portfolio investors, which India relies on heavily to cover its imports tab. Aggressive intervention would leave the central bank open to criticism that it is wasting precious money on problems that are beyond India’s control anyhow, noteably Europe’s debt crisis. Unlike most of its Asian peers, India has recently been running large current account and fiscal deficits. That means it must attract sufficient foreign money — namely U.S. dollars — to close the gap, and a weaker home currency makes that costlier. This is a perennial problem for India. The current situation is so worrisome because India is grappling with big internal and external economic threats simultaneously. Growth is slowing. Inflation remains high. Political paralysis has stymied domestic reforms. The RBI, the last line of defence against a currency meltdown, has cautiously begun to support the rupee, but its firepower may be more limited than its $300 billion in reserves would suggest. Beyond India’s borders, Europe is the biggest worry. As its banks deleverage, investment money has flooded out of India’s markets. If Europe’s debt troubles deteriorate, India could be hit with a balance of payments crisis as severe as the one that forced a sharp devaluation in 1991.
The rupee, which has dropped 16 percent in the past four months, got a reprieve last week after the world’s big six central banks banded together to try to ease dollar funding strains, helping it to snap a four-week losing trend. But analysts widely expect the rupee, trading on Monday at 51.26 per dollar, to resume its slide. The Indian currency will be the first casualty of a deterioration in the euro zone crisis.If Europe’s crisis deepens, India’s trade deficit would widen even more rapidly, and it would have even more trouble attracting foreign capital. Risk appetite will obviously collapse and gradually the currency crisis is likely to take the shape of a balance of payments crisis. Worries about India have spiked in tandem with concern over Europe. It’s time for India’s reckoning.
The bonds are too expensive at current levels to be converted into stock and the sharp depreciation of the rupee will leave issuers with a heavy redemption bill. The central bank could boost liquidity by cutting the cash reserve ratio, the proportion of deposits banks must set aside with the central bank as cash. Talk of a cut has circulated in Indian markets in recent days, although some economists argue that such a move could stoke already hot inflation. It would be extremely difficult for RBI and the government to arrest simultaneous downward pressures from equity, currency and money markets while struggling to address low growth and high inflation issues. That argues in favor of RBI keeping its ammunition dry in case conditions worsen. If India is indeed heading for a 1991-style balance of payments crisis, those reserves would be vital.

While metals and mining firms have taken a huge hit due to forex losses, profits of several blue-chip companies have also taken a knock in the second quarter of the current fiscal due to the higher cost of servicing foreign currency loans, unhedged exposure and increase in the cost of hedging. The rupee has plunged 14% so far in 2011, breaching the 52-mark for the first time since March 2009 and hitting a 32-month low on Monday.

Pharmaceutical major Ranbaxy reported a loss of over Rs 400 crore in the second quarter, its worst quarterly loss in nearly two-and-half years on the back of whopping forex losses in excess of Rs 600 crore. JSW Steel’s forex losses rose to a staggering Rs 513 crore in the quarter. This was about 75% of its profit before interest for the period.

Losses due to the exchange rates also eclipsed the healthy operating performance of Tata Motors, according to analysts tracking the company. Tata Motors reported a loss of Rs 294 crore on revaluation of foreign currency borrowings in the second quarter. This was about 54% of its profit before interest. Bharti Airtel’s net profit was dragged down by higher interest costs, including a forex loss of Rs 239 crore in the second quarter, analysts at Angel Broking said. Power Finance Corporation was among the companies worst hit by the currency swing and reported Rs 528.6 crore as forex loss, which was about 96% of its profit after taxes.

Indian companies took to the external commercial borrowings (ECB) route as interest costs soared following the record hike in rates by the RBI. Interest rates on ECBs were 7-9 % cheaper than loans taken here, prompting companies to this route to raise funds, say observers. However , the sharp appreciation of the dollar has caught them off-guard , making ECBs highly expensive.

Companies would have been better off if they had taken bank loans here. If the sharp rise in the greenback is taken into account , cost of servicing ECBs would be well in excess of 20% negating the gains of borrowing overseas. Indian companies are estimated to have borrowed about Rs 1.5 lakh crore under the ECB route this year.

Companies have to create MTM (mark-to-market ) provisions for their exposure to foreign currency loans. However , loans taken for working capital purposes alone would show up in the profit and loss account and those used for creating assets and capital expenditure would slip into the balance sheet, says Ostwal.

With the rupee breaching the 50-mark, deposits in dollar accounts such as foreign currency non resident account bank schemes (FCNR) (B) have earned an annualized 40% return. To make it sweeter, such accounts can now be held in freely convertible currency. Currently, currencies designated by the Reserve Bank include dollar, pound sterling, yen, euro, Canadian dollar and Australian dollar.

Kerala-based banks have been the biggest beneficiaries of the remittance windfall. Nearly 21% of the deposit base of Federal Bank is accounted by NRIs. For the second quarter, the bank has seen a 30% growth in NRE (non resident external rupee account) and FCNR accounts. “Nearly 7% of pan Indian remittances come through our bank and the rupee weakening has given a further boost,” says A Surendran, head, international banking, Federal Bank. The bank is expecting a 30% growth in its non resident business this fiscal.

Similarly, the non-resident deposit business of South Indian Bank has grown by 20% for the half year ended September 2011. To top that, many Indian banks had offered a 9% deposit schemes at the beginning of the year and with NRO (non resident ordinary rupee account) rates pegged to domestic rates, banks saw a heavy flows into such accounts. For instance, Tamil Nadu’s Karur Vysya Bank has seen a 12% growth in its NRO deposits quarter-on-quarter this fiscal. “NRIs are resorting to arbitrage on account of a weaker rupee and better interest rates on deposits in India when compared to banks abroad,” says N Venkataraman, managing director and chief executive officer, Karur Vysya Bank.

Importantly, the role of NRIs in the Indian banking system has widened. “They are looking at multiple benefits and not just windfalls from exchange rate fluctuations. This includes opportunities for investment in real estate and mutual funds,” says Praveen Kutty, head, retail and SME banking, Development Credit Bank. DCB has seen a growth of 20% in non-resident deposits q-o-q this fiscal and nearly 10% of the retail deposit base of the bank is accounted by Indians abroad. To cash in on such investment opportunities, South Indian Bank has launched portfolio management services for NRIs in association with Geojit BNP Paribas.

“Unlike the previous generation, many of the present generation living abroad are looking to return to India at some point. They are making investments in apartments and so nearly 50-60% of their savings gets channelized to India,” says N Kamakodi, chairman and managing director, City Union Bank.

It’s also profitable to have NRI customers as the average balance maintained by such customers in savings bank and term deposits is much higher than their domestic counterparts. While average balances in CASA of Indian account holders are Rs 35,000, NRIs tend to park over Rs 1 lakh in NRO and NRE savings accounts.

The $3-billion Chicago based value retailer, owned by global private equity firm Apollo Management LP, is largely present in North America and Europe but is now looking to expand its footprint in the Asian market with a big push in India.

DLF Brands, which retails brands like Mothercare , Alcott and DKNY, plans to open 75 stores of Claire’s over the next five years starting with the first one in New Delhi by December this year.

Claire’s is a specialty retailer which caters to girls in the ages of 3 to 27 across more than 3,000 stores globally. The NYSE-listed Claire’s also operates another brand Icing for older girls which is not a part of the 10-year licensing deal with DLF Brands. In 2007, Apollo Management had signed a $3.1 billion deal to buyout the retail chain. Around 50% of Claire’s Stores around the world are franchised while rest of the them are company owned.

The organized accessories market is growing exponentially in India but there are not enough players to cater to this demand . Claire’s with its depth of merchandise, trendy styles and affordable price points is a very relevant brand for Indian consumers. UK-based Accessorize , a fast-fashion accessories retailer, which also operates the famous clothing chain Monsoon internationally , franchised by Planet Retail has been growing rapidly in India and will be the biggest competitor for Claire’s as they both play in the value retail segment. Along with Accessorize, brands like Aldo and Charles & Keith make up the organized fashion accessories market.

The retailer’s merchandise , which targets young girls, includes earrings , necklaces, bracelets , handbags, hair and fashion accessories. Claire’s also has its perfume line and diversified into electronics and bedroom line. Claire’s stores are typically about 1,000 square feet and are found mostly in malls. The brand plans to open the first 75 stores in the first year of operations and spread across the top 6-7 cities. The intention is to take the brand to tier two cities as well considering its value proposition.

All the over 150 members of the World Trade Organization offer MFN status to other member countries. In addition, under regional trade agreements such as the South Asian Free Trade Agreement (SAFTA), the signatories offer the same to other partners so that all benefits of the various treaties are available multilaterally. Pakistan was the only WTO member that had not given MFN status to India.

It was a political issue since there was a fear that anti-India elements may create domestic tension. There was also a fear that Made in India products would flood Pakistan.

New Delhi has never denied MFN status to its western neighbour. In fact, with India being one of the proponents of General Agreement on Tariffs & Trade, WTO’s predecessor, Pakistan has always enjoyed the benefit. India officially accorded the MFN status to Pakistan in 1996. Although India could have raised the issue at WTO and got Pakistan to accord MFN status, it did not pursue that option.

The move will boost trade between the two countries as Pakistan will now have a small negative list, where imports are restricted or banned. At present, Pakistan has a small list of items that are on the positive list resulting in negligible trade between the two neighbors. There is, however, thriving indirect trade with goods routed through third countries such as UAE. With the negative list mechanism in place, costs will also come down as trade will take place directly.

Experts say MFN status for India will boost trade in South Asia. In addition, it is seen as one of the biggest confidence building measures that will boost diplomatic and political relations with Pakistan.

The cumulative value of exports for the first half of the current fiscal has risen 52.08% at $160.04 billion against $105.24 billion during the like period last year, according to data released by the ministry of commerce and industry.

Imports grew 17.2% to $34.58 billion in September, resulting in a monthly trade deficit of $9.67 billion. The total imports in the current fiscal till September went up to $233.5 billion, a rise of 32.41% against $176.36 billion in the first six months of 2010-11.

The trade deficit for the April-September period now stands at $73.46 billion. In the month under review, oil imports amounted to $9.2 billion, a 14.62% increase year-on-year, while non-oil imports rose 18.17% at $21.47 billion.

Oil imports during April-September were valued at $70.34 billion, 42.39% higher year-on-year. The total value of non-oil imports during the six months under review was $163.16 billion, 28.52% higher than the level of such imports valued at $126.95 billion during the corresponding period last year

Traditionally the best time for retail sentiment, marketers were apprehensive about whether macro-economic factors would dampen demand this year. The good news is that consumers are flocking back to showrooms albeit lured by big discounts and promotions. Durables marketers are already talking about a 30% growth while car makers, particularly those that have new models in their stable, are talking about 20-25% growth.

The market sense so far is that the larger macro economic issues have not really impacted consumer sentiment as far as purchase of electronics and durables go. What has helped that there is no threat of job losses like it was in 2008-09 and the bonuses have been alright. Rural consumption, heavily dependent on the rains, which has also been satisfactory, is driving up demand.

The last few days leading up to Diwali is always the most significant period and retailers expect the sales to grow further. Bigwigs like LG expects to clock a 30% higher growth compared to last year. Arch rival Samsung dittoes that sentiment by trying to achieve 30% growth target this festival season over last year. Sales of LED TVs and refrigerators are leading the growth with LED TVs up more than 100%, while refrigerators have grown at over 35% for Samsung.

Automobile majors aren’t too far behind despite struggling with flat growth for the last three months. Coupled with it, the industry has been hit badly by the labour unrest at Maruti, which comprises 50% of the car market. That’s also why industry experts feel the Diwali demand, overall, will be marginally higher than last year though individual companies, particularly those with new launches, are witnessing a strong upturn in the sentiment.

The first ten days of October have already seen an increase of around 20-25% over September’s sluggish period. The customers were waiting for the festival and marriage season to flock to the showrooms and the larger number of tactical promotions have also helped. The sentiment is strong enough as the industry to avoid negative growth despite Maruti. Hyundai, which has created a huge buzz with the launch of Eon, admits the footprint has been a windfall.

Industry experts, say that the only difference this year is the promotion pitch. There’s festival demand but customers need convincing particularly to buy petrol vehicles. However the diesel vehicle demand is of course running into wait-lists.