Basics of Investment

DHP Financial Training

Services LLP
 Coverage of Course
Indian Economy
Stock Market working
Mutual Funds
Derivatives Market
Commodity Market
Currency Market
Monetary Policy
 Objective of Course
Objective of this course is to give you
basic framework of important
segment of Indian financial system
Course duration is 2 days
 Indian Economy
Indian Economy called as Heaven of
Stability
Indian GDP growing at 7.5 % as compared
to world average of 3.1 %
Currently the World Big four economies are
in trouble
USA
Europe
China
Japan
Features of Indian Economy
3 unique features of Indian Economy
Demographic Dividend:- 70 % of the
population less than 35 years of age. Average
age of Indian is 25 years as compared to US
40 years, Japan 52 years and Europe 47 years.
Domestic Consumption:- around 80 % of the
production in India is consumed by our own
people and only 20 % exported. India not an
export dependent economy
High saving rates:- Indian economy saving
rate is 27 % of GDP while world average is 21
%
 Key Macro Economic
Parameter
GDP
Inflation
Interest Rates
Exchange Rate
Current Account Deficit
Fiscal Deficit
Index of Industrial Production (IIP
Index)
 GDP
GDP is Gross Domestic Product
It shows the progress made by one country
Data is released every 3 months by Govt.
Currently Indian GDP at 7.1% as compared
to world average of 3.1%
GDP is the most important parameter seen
by the Foreign investors for investing in
Indian Economy
Last 10 years average of Indian GDP is 7%
as compared to world average of 2.5 %
 Inflation and Interest Rates
Inflation is higher price rise which
results into lower purchasing value of
rupee
Inflation is growing at 6 to 7 % per
annum
Inflation is independent variable while
interest rate is dependent variable
As inflation rises, RBI increases the
Interest Rates
 Inflation and Interest Rates
RBI increases REPO rate to control
inflation
As Repo rate rises, the rate on fixed
deposit and loan rates also rise
As loan rate rises, the demand for loans
falls and thus economy demand and
consumption slows down
In December 2013, GDP had come down
to 4.6 % as Repo rate was at 8 %
Loan rate had become 11 %
 Interest Rate
Interest rate has negative corelation
with GDP of the country
As interest rate rises, the GDP of the
country is sure to fall as demand and
consumption slows down in the
economy
Interest rate has negative relation
with stock market.
 Exchange Rate
Exchange Rate refers to the rupee
value versus the dollar
In 2007 1 $ = 38 rupees
In 2011 1 $ = 43 rupees
In 2013 1$ = 68 rupees
In 2014 1 $ = 68.30 rupees
 Exchange Rate
Rupee depreciation means weak
economy and foreign currency outflow
Rupee appreciation means strong
economy and foreign currency inflow
Rupee depreciation hurts as India
imports 77 % of the total crude oil
requirement
Oil pool deficit rises which makes the
Balance of Payments weak
 Exchange Rate and oil
The oil prices have come down from $
100 in 2014 to $ 42 in 2016
Rupee has depreciated
It is because of lower oil prices that the
current account deficit is under control
The current Account Deficit is only 1.2
% of GDP which is mainly due to lower
oil prices
 Current Account Deficit
It is the difference between the
exports and imports
When imports are more than exports
it is called as Current Account Deficit
Right now the CAD is 1.2% of GDP
Mainly India imports Oil and Gold
which are main components of the
current account deficit
 Current Account Deficit
Lower current acccount deficit means
stronger Balance of payment
Less pressure on import bill
Make In India programme to reduce
the import bill since many things
would be manufactured in India
More jobs would get created and thus
the GDP of the economy would rise
 Fiscal Deficit
Fiscal Deficit refers to the gap between
Government Income and Government
Expenditure
Govt Income is the taxes paid by
individuals and coroporates
Govt Expenditure is what govt spends
on poverty, defense, social causes,
infrastructure
Fiscal Deficit target is 3.5 % by Govt.
 Fiscal Deficit
Fiscal Deficit considered very important
by Foreign Institutional Investors (FII)
In Feb 2015 budget when Finance
Minister assured that Fiscal Deficit
would be at 3.5 %
In march 2015 FII bought Rs. 22000
crore worth of shares and April 2015
they bought shares worth Rs. 8000
crore shares
 Index of Industrial
Production (IIP)
IIP data tracks the demand in
manufacturing segment
Data is released every 2 months by Govt.
Rise in IIP index means that manufacturing
demand is picking up in the economy
Last 6 reading are not giving any clear
picture
-1.5 %, + 2 %, 0.1%, -0.8%, 1.2% and then
now 2.1%
 Monetary Policy
Monetary Policy is handled by RBI
Four main instruments RBI has to
control money supply and inflation
Repo Rate
Reverse Repo Rate
CRR
SLR
 Instruments of Monetary
Policy
Repo Rate:- Rate at which RBI lends to
commercial banks. It is at 6.5%
Reverse Repo rate:- Rate at which banks will
keep surplus cash with RBI. It is at 6%
Cash Reserve Ratio:- Rate at which banks
have to keep compulsory cash with RBI. It is
at 4 % and banks dont get interest on this.
Statutory Liquidity Ratio:- It is compulsory
investment by banks into Govt securities
and bonds. It is at 21.5%
 Effect of Monetary Policy
RBI when increases the Repo rate
then banks have to pay more interest
to RBI
Banks in turn charge more interest
from customers
This makes loans more costly
Reduces demand and consumption in
economy
 Real Life Example
From 2010 to 2013, RBI had increased Repo
rate from 5.25% to 8%
Loans had become 11 %
Automobile sector saw 2 lac jobs getting
destroyed
Real estate sector also saw huge slow down
Infra companies bleeding as leverage capital
with high interest rates have killed them
In Dec 2013, GDP become 4.6% lowest in last
10 years
 Important of Macro Economic
Data on Stock Market
FII and FDI closely track the macro
economic data for deciding to invest
in Indian Economy
FII investment rises when they see
Indian economy getting more strong
 FII investment figures
Year FII (Rs. Crore) Index
2007 +70,000 21206
2008 -52,000 7697
2009 +83,000 18000
2010 +1,30,000 20,000
2011 - 2700 15500
2012 +1,20,000 21000
2013 +1,10,000 22000
2014 +1,25,000 27400
2015 +18000 26100
 Global Economy Scenario
World Economy going through very tough
phase
IMF and World Bank have reduced global
GDP growth rate from 3.8% in January
2016 to 3.1% in August 2016
Four major drivers of world economy
USA
Europe
China
Japan
 World GDP contribution
Country % contribution in
world GDP
USA 23
Europe 20
China 9.3
Japan 8.7
Total 61

India 2.4
Analysis of Economies-China
China --- the Dragon
China Debt to GDP ratio is at 282 %
It means that China income is 100
and it has to repay 282 back to world
investors
Banks NPA at 30 %
Huge Excess capacity
Many cities called as Ghost Towns
Analysis of Economies-China
China is biggest producer and consumer of
many commodities
China slowdown has caused commodities
cycle to slow down world wide
China dumping its products in world markets
at cheap cost
This causes damage to world economies
Indian CEAT companies makes tyre for Rs.
20,000 but China dumps same tyre for Rs.
12000
Indian Companies makes fan for Rs. 1400
but China dumps for Rs. 400
Analysis of Economies-China
China has devalued its currency
This led to Currency War and all the Asian
Countries currencies also became weak
China has invested $1.1 trillion in US
Economy which it uses for tactical pressure
China has shifted from One Child Policy to
Two child policy
Shift from Investment led Economy to
Consumption led model
GDP has lowered from 9% to 6.6% with
downward revision to 6.2%
 Japan
Japan Debt to GDP ratio is at 229 %
Its GDP is -0.8 %
Officially they have declared that
they are into Recession
Average age of person is 52 years
Negative interest rates (charges
deducted for depositing money into
bank )
 Japan
Japan Central Bank has announced
QE of $265 billion
Money to be spend on consumption
Effort to revive economy
 Europe
Europe Debt to GDP ratio is 92 %
Europe unemployment is 25 %
Greece Debt to GDP ratio is 177%
Spain is 120 %
Italy is 160 %
No clear plan how to solve this huge
pile of debt capital
 US Economy
US GDP growing at 2.2 %
Unemployment rate down at 5.1%
which is at 40 years low
US could create more than 2 lac jobs
per month in last more than 1 year
FED has increased its first interest
rate in December 2015 by 0.25%
 Impact of US Fed Rate Hike
In Dec 2015 US Fed hiked its interest
rates
The result was Indian stock market
saw in January 2016 and Feb 2016
outflow of Rs. 14000 crores
Emerging markets fear that with US
hiking its interest rates, there could
be
 What is Investment ?
Investment is a process where we
forego current consumption for
future growth
Surpuls funds have to be parked for
getting higher future returns
 Why to Invest ?
For Higher Education
For marriage
For retirement life
To beat Inflation
To increase standard of living
 What is Nominal and Real
Return
Fixed Deposit has 8 % Interest which
is the nomial rate of return
Inflation is 6 %
Real rate of return is 8 6 = 2 %
Inflation reduces the purchasing
power of money
Average inflation in India is 6 to 7 %
 Instruments of Investment
Equity Shares
Mutual Funds
Fixed Deposit
Provident Fund
Insurance
Gold
Property
 History of Stock Market
First stock market started in 9th July
1875.
Native Share and Stock Brokers
Association
Now known as BSE
At that time membership fees Rs. 1
There were some 318 members
 Current scenario
Today 23 stock exchanges in India
Major ones BSE (Bombay Stock
Exchange ) and NSE (National Stock
Exchange)
NSE formed in 1994
 Daily Turnover of stock
markets
BSE Cash segment Rs. 4000
crores
NSE cash segment Rs. 15000
crores
NSE FO Rs. 1,50,000
crores
 What is IPO ?
It refers to Initial Public Offering
The company for the first time goes
to public to raise the money
IPO market is also known as Primary
market

Ex:- Coal India raised the money for

Rs. 15000 crore
 Why companies raise
money through IPO ?
Money raised through IPO is ownership
money
It need not be returned to shareholder
unless company closes down
No interest is to be paid on this
amount
No mortgage of property is required on
this amount
 Process of IPO
The company first goes to Merchant
Banker Category I who has licence
from SEBI
Merchant banker has the ability to
raise the money from the market
Merchant banker are those who have
networth of Rs. 1 crore
Eg:- karvy consultants, ENAM, SBI Cap
 Process Cont
The Merchant Banker will prepare
project report of the company
They will do two types of analysis
Quantitative
Qualitative
 Process cont.
Based on both types of analysis the
price range is decided by the
Merchant Banker
For instance Coal India had price
band of Rs. 225 to Rs. 245
If promoters agree then the
Prospectus is submitted to SEBI
 IPO process cont
SEBI would give answer within 21
days
If no comment comes from SEBI
within 21 days then IPO is said to be
approved

If any comment comes then new

prospectus is to be filled again
 IPO process
Once the IPO gets SEBI approval the
Merchant Banking goes for marketing
of the issue
At least 90 % of the issue should be
subscribed then only issue is
considered as successful
If less than 90 % is collected then
issue is considered as Fail and money
has to be refunded
 IPO process
In order to avoid failure of IPO
Companies also appoint Underwriter
Underwriter is also company who
gives the guarantee to buy the
shares if the public does not buy
Eg:- Infosys IPO had failed but ENAM
consultants were the underwriter
who purchased the stocks and made
the issues successful
 What is FPO ?
It is Follow on Public Offer
It refers to company is already listed
and for second time goes for raising
money

For ex:- power grid raised Rs. 7000

crore from the market
 Secondary Market
It is known as the Stock Market
Companies trade on the stock market
On BSE 6500 companies are listed
On NSE 2500 companies are listed
 Regulation of Stock Market
It is regulated by SEBI (Securities and
Exchange Board of India)
All the stock exchanges of the
country are regulated by SEBI
All the matters related to scams in
the stock market are looked after by
this agency
 Relationship between
Primary and Secondary
market
Both are inter related
If there is bull run in secondary
market more IPO will come in Primary
Market
If there is bear run in the secondary
market then less IPO will come in
Primary market
 Years of IPO
2007 saw maximum IPO as the market
was in bull mode
2008 there were no IPO after Reliance
Power failure
2009 again saw many IPO as stock
market recovered
2014-15 saw many IPO coming as we
had good return from stock market and
stable government at the centre
 Classification of stocks
Large Cap stocks which have market
cap greater than Rs. 9000 crore
Mid cap stocks which have market
cap between Rs. 2500 to 9000 crore
Small Cap stocks which have market
cap between Rs. 250 cr to 2500
Crores
Micro cap less than Rs. 250 crores
 Another classification
A Blue Chip stocks which are
fundamentally very sound
B1 B2 which are sound but they are
small in size. Normally known as Mid
cap
T group refers to Trade to Trade and
most risky as only delivery base trade
allowed. This stocks have abnormal
volatility
 Another classification
S group stocks are small companies
which are listed on Indonext
exchange but trade on BSE
Z group stocks are those which are
very risky as they may get delisted
or suspended anytime by SEBI.
What to Open an Account ?
3 types of accounts required to
trade in stock market
1. Trading Account
2. Demat Account
3. Saving account in bank
 How to open trading
account ?
Documents required
Pan Card
Address Proof (driving license, voter
id, passport etc)
Bank Statement zerox along with
stamp of bank
Passport size photo
How to open Demat Account
?
Documents Required
Pan card
Address Proof (Voter id, passport,
bank statement, driving license)
Bank Statement
Photo pass port size
Cancelled cheque (if required)
 Use of Trading & Demat
Account ?
Trading account is used to actually
put the buy and sell transaction
A code is generated and transactions
are punched into that code
Demat accout is used to store the
securities which are purchased.
Demat account is also a number
which is known as Client ID.
 How Exactly does trading
take place ?
Once trading and demat accounts are
opened.
The client will call the broker or sub
broker
He will tell his trading code in which the
transaction has to be kept
Once the transaction is done, the broker
or sub broker will give confirmation to
client about the trades done
 How many types of trading
are there ?
Two types of trading
Intraday trading
Delivery base trading

Intraday trading refers to doing buy

and sell transaction in one day itself
In intraday, the profit or loss is
settled by the way of difference only
 Delivery base trading
Here the entire payment is made by
the client
The securities are then transferred to
the demat account of the client after
the client makes full payment.
If client does not pay then securities
are lying in pool account of broker.
 Settlement Process
The payin and payout of funds and
securities takes place on T + 2 basis
T is Monday so plus two working days
means on Wednesday the payin of
funds and securities will take place in
the morning
Also on Wednesday the payout of
funds and securities will take place in
afternoon
 Stock Market
Stock Market or capital market is the
long term source of investment
Equity shares are the best financial
assets to create long term wealth
creation
BSE SENSEX formed in 1979 with base
of 100 and today it is at 28000
In last 34 years CAGR return is 16.5 %
 Stock Market
BSE has 5400 listed companies which
makes it the biggest exchange in
world in terms of listed companies
BSE was started on 9th July 1875
Stock market channelises the savings
into investment
Investors get various investment
options to invest in the stock market
 Two type of participants
Trader
Investors

Trader is one who buys and sells on the same

day or on short interval like week or month
Objective of trader is short term gains
Investor is one who takes the delivery and is
holds the share for long term investment
Obejctive of investor is long term wealth
creation
 Knowledge Required for stock
market investment
Economic scenario
Industry scenario
Company balance sheet
 Mutual Funds
Mutual funds refer to pool of money
which collectively belongs to investors
1964 first mutual fund started UTI
1987 PSU banks were allowed to start
MF and SBI was the first PSU mutual
funds
1993 ---- Pvt Sector Mutual funds were
allowed and Kothari Pioneer started
1996 --- SEBI guidelines for MF released
 Types of Scheme
Equity Diversified
Balance funds
Debt Funds
Sector Funds
Index Funds
ETF funds
Fund of Funds
 Defining Funds
Equity Diversified:- Funds which invest
100 % in stock market
Balance Funds:- Funds which invest 65 %
in stock market and 35 % in debt market
Debt Funds:- Funds which invest 100 %
in debt market
Sector Funds:- Funds which invest 100%
in only one sector
Index Funds:- Funds which have one
index like Nifty or SENSEX as benchmark
index and replicate that index
 Defining Funds
ETF:- Exchange Traded funds are
those which are listed on stock
exchange.
Fund of Funds:- These are those
funds who invest in other funds
 Benefits of Mutual Funds
Diversification :- Investment is done in
around 50 stocks so risk is diversified
Decent Return:- since 1964 average returns
are in range of 12 to 15 %
Liquidity:- Redemption money gets into
account into 3 working days
Taxation:- No long term capital gains tax
after one year. Short term capital gains tax
at 15%
Professional management:- Asset
management company manages the
portfolio of shares
 Current Scenario
There are 43 mutual funds in India
More than 1000 schemes
Total AUM is Rs. 14 lakh crore
In 2004 the total AUM was Rs. 1.5 lakh crore
In 2014-15, 23 lakh new SIP were registered
In 2015-2016, 29 lakh new SIP were
registered
In 2015 market return -5% but SIP
registration up by 26 %
 Asset Allocation of Mutual
funds
Equity Diversified 100 % Equity
shares
Balanced 65 % Equity & 35 % Debt
Debt Funds 100 % debt instruments
Index Funds 100 % in index shares
Sector funds 100 % in Sectoral
shares
How to select Mutual Fund ?
AMC History
Past Performance
Consistency of Performance
Investment Style Aggressive or
Defensive
 What is SIP ?
SIP stands for Systematic Investment
Plan
It is based on Rupee Cost Averaging
Automatically times the market
It is tool for Wealth Creation in the
long run
 How does SIP work ?
It is based on Rupee Cost Averaging
Every month Rs. 1000 is deducted
from bank account and buying is done
Every month buying brings down the
average cost
Rs. 1000 invested for 30 years at 15 %
Invested Amount Rs. 3,60,000
Return Amount Rs. 70,00,000
 Derivatives
It is an instrument whose value is
derived from underlying asset
Underlying assets may be financial or
non financial.
Eg. Stocks, bonds, gold, silver,
temperature, electricity
 History of Derivatives
It started in 1848 at Chicago Board of
Trade (CBOT)
In 1865 Future trading started
In 1900 first index future contract
was traded on Kansas Board of Trade
 Products in Derivatives
Two main products
Futures
Options

Futures is a contract between buyer

and seller for a predetermined rate
and predetermined date to execute
transaction on a recognized stock
exchange.
Features of Future Contract
Contract expires on last Thursday of
month
3 contracts are available
It is cash settled
It has fixed lot size
It has margin which is decided by
exchange
It is unlimited profit/loss
 Working of Future Contract
Buy one lot of Nifty
50 * 6000 = Rs. 3,00,000 contract
value
Initial Margin 10 % = Rs. 30,000
Closing Price 6100 so Rs. 100 profit
per lot
MTM Profit 50 * 100 = Rs. 5000
Closing balance Rs. 35,000
 Cont
Next day closing comes to Rs. 5900
Loss of Rs. 200 per lot
50 * 200 = Rs. 10,000 MTM Loss

Position can be hold till last thrusday

of the month
 Options as investment tool
Option gives the buyer the right but
not the obligations
There are two types of options
Call option
Put option
Call option gives the buyer the right
to buy but not the obligation
Put options gives the buyer the right
to sell but not the obligation
 Working of call option
One will buy Call option when he is
bullish
Nifty at 6000 buy one call option
50 * Rs. 100 = Rs. 5000 Premium
Now Nifty goes to 6100
50 * Rs. 200 = Rs. 10,000 Profit
Net Profit is Rs. 5000
Maximum loss is only amount of
premium paid
 Working of Put Option
One will buy Put option when he is
bearish
Nifty at 6000 buy one Put option
50 * Rs. 100 = Rs. 5000 Premium
Now Nifty goes to 5900
50 * Rs. 200 = Rs. 10,000 Profit
Net Profit is Rs. 5000
Maximum loss is only amount of
premium paid
 Debt Instruments
Debt instruments are those which
give fixed return
They create financial obligation on
the issuer of the instrument
Capital and interest have to be
repaid irrespective profit or loss
 Which are debt
instruments ?
Fixed Deposit of banks (7 to 8 %)
PPF (8.5 %)
NSC ( 8%)
KVP (8 %)
Company Deposits (10 to 12 %)
Investment Scenario in Debt
Instruments
Out of Indian household saving
44 % goes to Fixed Deposit
28% goes into Life Insurance
22 % goes to NSC, KVP and PPF
 Risk in Debt Instruments
Credit Default Risk
Inflation Risk
Interest Rate Risk

Factors to be seen is Credit Rating in

case of Debt Instrument
 What is Credit Rating ?
It is rating done by agencies to
evaluate the repayment capacity of
principal amount and interest
amount
Credit rating in India is done by 3
agencies
 Credit Rating Agencies
CRISIL
ICRA
CARE

All the 3 main agencies which do the

rating work
 Rating are given with the
following symbol
AAA Highest Safety
AA Highly Safety
A High Safety
B Adequate Safe
C Risk Prone
D - Default
 Process of Credit Rating
Company wishing to go for Credit
Rating will make Application
Credit Rating company will create
two teams
They will do two types of analysis
Quantitative
Qualitative
 Quantitative Analysis
Analysis of Profit and Loss
Analysis of Balance Sheet
Ratio Analysis
Fund flow and Cash flow analysis
Product share and future prospects
Current market share
 Qualitative Analysis
Management Outlook
Back ground of promoters
Educational qualification
Domain knowledge of business area
Bank reference
Past Credit track record
 Commodity Markets
Commodity Markets started in 2008
Mainly 2 national level exchanges
MCX and NCDEX
MCX - Multi Commodity Exchange
NCDEX National Commodities and
Derivatives Exchange
 Assets Traded
Bullion Gold, Silver
Metals Steel, Aluminium, copper,
zinc
Energy - Crude Oil and Natural Gas
Agri Potato, Sugar, Rice, Wheat,
Chana
 Gold as Asset Class
Gold prices were Rs. 9000 per 10 grams in 2007
In 2008 During global Financial Crisis prices
reached Rs. 33000 per 10 grams
Gold is considered as Safe Heaven
Gold has inverse relation with the following
1. Stock Market
2. Macro Economic Data
3. US Economy data
 Gold as Asset Class
When stock market crashes Gold prices
goes up
When IMF or world bank says world
economy weak then gold prices would
rise
When US data is weak gold prices rise
In short, any bad news in world economy
is good news for gold prices
Any good news in world economy is bad
news for gold prices
 Gold as asset class
India imports 850 tonnes of gold every
year
Indian household has 25,000 tonnes of
gold
Gold is second largest item in India
Balance of payment after oil imports
In 2015 when Chinese crisis came to
light, gold from Rs. 25000 per 10 grams
went to Rs. 29000 per 10 grams
 Is Gold Investment
Productive
Gold investment is not productive since
the money gets blocked in gold
If you put money in equities, fixed deposit
that money circulates in economy
Last 100 years return in gold is only 6 %
Last 34 years return in gold is 10 % as
compared to BSE sensex of 16.5 %
Equities outperform in the long term
 Oil as asset class
Oil prices were $ 100 to $ 110 in
2014
Oil prices crashed to $ 29 and now
trying to settle to $ 45
India imports 77 % of the crude oil
requirment
Oil is the largest import item in
Balance of payment
 Oil as Asset Class
India Current Account Deficit is at 1.2 % of
GDP
This has come down due to fall in oil prices
70 countries in the world are facing
problem due to lower oil prices
52 Arab Nations are facing problems
Arab Nations Current Account surplus has
come down from $ 475 billion to $ 60
billion
 Oil as Asset Class
Oil prices coming down has created
risk for Indian working in Gulf Nations
Recently 1000 Indian workers in Gulf
were asked to leave as income of
coming have come down
 Introduction
Currency markets started in India in
2008
Currently National Stock Exchange
(NSE) and MCX-SX are the two major
exchange on which currency futures
are traded
Currency future is a standardized
contract which is traded on recognized
stock exchange.
 Products traded
Rupee dollar contract
Rupee pound contract
Rupee Euro contract
Rupee yen contract

Around 80 % of the market volume is

in Rupee Dollar contract
 Features of currency
markets
It is cash settled market
There is no delivery of actual
currency
12 month contracts are traded
Liquidity is there only in near and far
month contract
Banks are allowed to trade in
currency derivatives markets
 Example of trade when rupee
is likely to depreciate
Suppose Rupee is at 68.50 and lot is
1000 units
One feels that rupee will depreciate
So one buys one lot at 68.50
Now the rupee goes to 69.50
Profit = 69.50 68.50 = Rs. 1 * 1000
= 1000 Rs
 Example of trade when rupee
is likely to appreciate
Suppose Rupee is at 68.50 and lot is
1000 units
One feels that rupee will appreciate
So one sell one lot at 68.50
Now the rupee goes to 67.50
Profit = 68.50 67.50 = Rs. 1 * 1000
= 1000 Rs
 Currency is a unbiased
indicator
Currency appreciation = strong
economy and foreign inflows
Currency depreciation = weak
economy and foreign outflows
 Indian currency history
Year Rupee vs Dollar
2007 1$ = 38 Rupee
2011 1$ = 43 rupee
2013 1$ = 68 rupee
2016 1$ = 68.30 rupee
Rupee has depreciated highly against
the dollar in the last 5 years
 Example of Hedging
Suppose Infosys has sold software to US
company
1 $ = 68
Now the risk is that if 1$ = 67 then it faces loss
So Infosys will sell rupee dollar contract at 68 in
futures market
So when actually rupee becomes 67, infosys
will lose 1 rupee in real market but will gain 1
rupee in futures market
This is hedging. No profit but value if protected
 Current scenario
China has depreciated its currency by
1.5%
Indian rupee has depreciated by 3.5 %
Asian countries have depreciated by
15 to 20 %
China would dump their cheap
products in international markets due
to currency depreciation.
Thanks