Changes in the economic climate, specifically, in India between Oct 2008 and Feb 2009

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

14. RETAIL SLUMP
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

20. DISCUSSION
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