With the DOLLAR hike imminent, will India be the target of the harvest?
1
"I haven't contributed, you have fallen" This classic line in the "Journey to the West" is most appropriate for today's Indian economy.
2022 has just begun, but European and American capital is fleeing India in droves.
According to the Indian Institute of Finance, overseas investors have sold a net of $5.58 billion in Indian stocks in the past 50 days, compared to $5.08 billion in the same period last year.
Why did European and American capital suddenly stop loving democratic India and flee one after another?
The most fundamental reason is that the US dollar is about to raise interest rates, and European and American capital is particularly worried that the 3-7 interest rate hikes of the Federal Reserve in 2022 may trigger a strong appreciation of the US dollar; in turn, it is the strong depreciation expectation of the Indian currency rupee.
If European and American capital sells Indian stocks when the Indian rupee is greatly depreciated, it will be a big loss.
The reason is simple: if a European and American investor owns Indian stocks of Rs 7.5 billion, at the current Rs-USD exchange rate of 75:1, he can sell it now and exchange it for $100 million in cash.
A few months later, the rupee-dollar exchange rate fell to 100:1, so the Indian stock of Rs.7.5 billion in the hands of European and American investors could only be exchanged for $75 million in cash after the sale, and the income plunged by 25%.
Therefore, European and American investors want to take advantage of the dollar interest rate hike - the rupee depreciation before the rapid cash out.
2
The accelerated withdrawal of European and American capital from India will bring a plunge risk to the Indian stock market and even trigger a crisis in the entire financial system.
You know: The Indian stock market is a highly open financial market, the proportion of foreign investment in the Indian stock market is as high as 30%, and the proportion of foreign capital trading volume in the total trading volume of the Indian stock market is as high as 50%.
This means that if the current situation of foreign capital withdrawal from India intensifies, the Indian stock market crash is a high probability event.
At the same time, the dollar rate hike that triggered the withdrawal of foreign capital from India will also bring two other disasters to India.
The first catastrophe is the inflation crisis.
As we all know: India is a resource-poor country, crude oil, iron ore, natural gas and other energy sources, most of which need to be imported.
Similarly, India is also a country with weak industrial strength, and the machinery and equipment, core components, chemical raw materials and even many consumer goods needed to develop industry and maintain economic operation need to be imported from overseas.
Once the dollar raises interest rates and the rupee "depreciates", then India will spend more rupees to import energy and industrial goods, and the price of energy, industrial goods and consumer goods denominated in rupees will soar, thereby aggravating India's domestic inflation.
In January 2022, India's inflation rate has already exceeded 6%, and once the rupee depreciates, India's domestic inflation will break through 10%, and at that time, even the poor and happy Shudra may not be able to bear it.
3
The second disaster is the debt and foreign exchange crisis.
By the end of 2021, India owed more than $600 billion in external debt, or 23 percent of GDP, a modest share of emerging developments.
However, India's foreign exchange reserves are also not high, only about 600 billion US dollars, foreign exchange reserves and external debt offset, India's ability to earn dollars is zero.
In fact, due to India's weak industrial strength, India has always been in deficit in foreign trade. India's more than $600 billion in foreign exchange reserves come entirely from foreign investment or external debt.
Once the dollar starts to raise interest rates, the dollar foreign debt is not so good to borrow; or the interest rate is greatly increased, India can not afford to borrow; not only will it affect India's borrowing of new money and old debt, but also will lead to the largest water injection pipe of India's foreign exchange reserves being cut off, and the foreign exchange reserves will be rapidly depleted.
The depletion of India's foreign exchange reserves will lead to a further plunge in the rupee, trapped in a vicious circle.
4
It can be said that the us dollar interest rate hike is an excellent opportunity for European and American capital to harvest India:
European and American capital fled India and cashed out Indian stocks at a high level, which was the first harvest.
After European and American capital fled India, triggering three major crises of finance, debt and foreign exchange, and causing India's assets to plummet, European and American capital can change a shell and vest to copy India's high-quality assets at a low price in the name of rescue, which is the second harvest
As for the method of low-cost bottom reading, I have written in many articles, and I will not repeat it here, and you headline officials only need to know: you can copy the bottom, you can do it.
Of course, if India wants to retain European and American capital and prevent the rupee from depreciating against the dollar, there is only one trick that can be used: synchronize the dollar interest rate hike, and increase it more fiercely.
You Fed raise interest rates by 50 basis points, I add 100 basis points, you Fed use the interest rate hike method to attract foreign capital, I will use the interest rate hike method to suck back, suck each other, see who can suck who.
However, if India really wants to raise interest rates, to the extent of preventing the depreciation of the dollar, its economy will also bear greater losses: since the epidemic, it is precisely by relying on low interest rates that the Indian economy is barely hanging its breath, and once it is necessary to raise interest rates with the Federal Reserve, it is really difficult to say whether the Indian economy can hold up and whether it will collapse.
5
If India does not raise interest rates, it may be harvested; interest rates, the newly recovered domestic economy may not be able to hold up, and it is really a dilemma.
Who made India's industrial strength too poor? The strength is too poor, and everything is harvested.
Therefore, Indian public opinion has recently been particularly sensitive to the Fed's interest rate hikes. India's mainstream financial media desperately lie and cover up to the people:
The Fed will not raise interest rates so quickly, whether it will raise interest rates in March or not, it is not necessarily;
Even if the rate is raised in March, the rate hike will not exceed 25 basis points, so rest assured;
Even if the Fed raises interest rates by 50 basis points in March, india, has enough strength to deal with it, and the interest rate hike will not have a big impact on us.
But in fact, India has long been frightened by the news of the dollar interest rate hike, trembling, trembling: in the past three months, the rupee has fallen by 15% against the dollar (the chinese depreciation), which proves all this; there has been no interest rate hike, the rupee has softened like this, really want to raise interest rates, the rupee does not know how much more plunge.
India says it is not afraid, but the body is still very honest.
7
Once the dollar raises interest rates, India responds improperly, causing the rupee to plummet and the asset prices of the Tianzhu country to bottom, whether Europe and the United States will harvest, or how much to harvest, depending on how much India's geopolitical status in the eyes of Europe and the United States is worth.
To put it bluntly, it is to support India against the Asian powers, try not to harvest, or cut lightly.
There is also the fact that when the rupee plummets and the asset prices of the Tianzhu country bottom out, does India have the courage to carry out financial regulations and break the wrist with European and American capital.
How things will evolve in the end will give us the answer in the future, and you headliners, in 2022-2023, let us wait and see india.