30 January 2006

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Just back from a few wonderful days in Goa, and, you know, it keeps getting better and better. The air was clean and cool, the water was clean and cool, the scene was - well, there were a bunch of Russians there - but, it was really clean and cool, and the feni - well, there's not much you can say about that except that the difference between feni and more distilled alcohol, like whiskey or rum, is that if you drink a lot of whisky (or rum or vodka or whatever), you get drunk, BUT if you drink a lot of feni, you get drunk AND YOU SEE GOD.

So, as I was saying, I was in Goa, with my wife and family, communing with nature, chit chatting with God and one evening at a lovely restaurant, where we sat under a canopy of bougainvillea blossoms, I noticed this very unusual couple. He looked about my age, but quite debonair, in a white mundu if you will; and she, well, she was in a red sarong and if I were to describe her, I'd quickly run out of the 8 or 900 words I'm allotted here. Suffice it to say, she was beautiful and intense, and our friend was clearly trying to sell her on something.
We were sitting at a nearby table and so could catch snippets of the conversation. And his suit didn't seem to be going very well.

He said, "Well, but don't you see how wonderfully it's been going these past couple of years? I mean, just look around you?"

"Nouveau riche," she sniffed, turning scornfully to a large, loud table of Russian tourists nearby. "And, in any case," as she reached for her glass of wine, "what does a place like this have to do with the simple people of this country?"

"But, that's just it, my dear. Those people, the one's making that Godawful noise - well, they're Russians - you should know…"

"I do," she said, draining her glass.

"So, for one, tourism is booming. We're still a long ways from the bank, but, it's beginning…"
"You see what I mean - you're always bring banks into it. But, even if tourism is doing well, how does it help the poor man in the streets of Kolkatta?"

He signaled to the waiter. "Why don't we try some of the local feni? It's supposed to be very good."

"It better be," she sniffed, softening a bit. The wrap fell off her shoulders. He gallantly retrieved it and draped it every so slowly back about her.

I was beginning to feel a little bit of a voyeur, but, just as I was turning back (to my own feni), he said, "But, don't you see that we - and I mean the real we in the Congress - we share your concerns. Really. We believe that it is our primary job to uplift the poorest of the poor."

"C'mon," she snorted. "You expect me to believe that. All you guys do is talk about incentives for business, all you show concern for is the market. And you expect me to believe that the few times you deign to talk about the poor…bhrrrr." She took a large swallow of her feni. "Look at this place," she said, pointing. "Don't get me wrong. It's lovely and this feni stuff is even lovelier. But seriously Picky, you're just another rich boy pretending to care."

"But, don't you see…". He took a swallow. "I feel all I'm saying is 'don't you see'." He signaled the waiter for more feni. The band had gotten louder, playing some Goan masala.

Picky took a large sip - more a gulp really. "What I mean is OK, I am a rich boy from a privileged background and I have studied economics and I am interested in business. But," and here he was really getting worked up, his mundu in a twist, so to speak, "I do feel for the country - and the country isn't just the Ambani's and the Subash Chandra's and the Mittal's. The country is this nice boy who's pouring us the feni, his mother - somewhere in Assam, to judge by him - it's everybody, it's all of us."

He was really getting going now. He was half out of his chair by now and almost spilled the waiter's tray as it brought their next round of drinks.

"Calm down," she said, sweetly, smiling behind her suddenly brighter lipstick. "We're not here to get political."

"But, it is. It is. Everything is political. We must do the right thing." He was almost shouting. Even the Russians turned around.

"And the right thing," he continued, "is to increase the size of the pie!" He virtually screamed this out and the young waiter came running across with the dessert menu. "Do you know what is the real difference between 8% and 10% growth? Do you? Do you? Tell me."
She was getting a bit embarrassed, trying to calm him down. "Listen, Picky, I didn't mean to question your integrity"

"But, tell me, sweetie, tell me," he was suddenly calmer, back to his charming self, quite the trial lawyer. "Tell me the difference between 8% and 10% growth."

She shrugged, pleased that the scene was calming down, "2%."

"Aha," he said triumphantly. "The difference is that at 10% growth, you double the standard of living in one generation; which means that almost everyone in India would be able to see their daughter (or their son) live a dramatically better life. At 8% growth, it would seldom happen."

He stood up, his triumph complete. She looked a bit embarrassed.

He reached across and slowly drew her pink stole off her shoulders, and rising, his mundu swaying, he looked every bit the Goan dervish. "Shall we dance?" he said.

Currency Markets View - Rupee and Majors

INR

Fortnightly movement: O-44.11 H-44.5250 L-44.07 C-44.1450.
Sentiment: positive on foreign funds inflows and weak dollar
Expected range for 1 Month: 43.80-44.80
Expected range for 3 Months: 43.25-44.80

The bulls have yet again managed to strengthen the domestic unit further after witnessing a zigzag movement for few days. Buoyant stock largely helped by good foreign inflows gave a positive punch to the domestic currency. The domestic unit managed to end the fortnight at 44.1450/1550 after witnessing a high of 44.5250. Dollar weakness due to unfavourable data along with fund inflows helped the domestic unit largely. High call rates kept the premiums on the rise.

We expect the strength in the domestic unit to continue for a while backed by funds inflows and an uncertain dollar outlook overseas. It is significant that RBI continues its hands-off approach, which suggests that we may see the bulls be able to break through the 44.00 level. However importers demand may limit gains, and we forecast a rupee high of 43.80.

EUR

Fortnightly movement: O-1.2143 H- 1.2325 L-1.2040 C-1.2093
Sentiment - good and may probably improve
Expected range for 1 Month: 1.1950 -1.2450
Expected range for 3 Months: 1.1950 -1.2700

In the week before last, the euro dipped as far as 1.2040 after US capacity utilisation was reported to have risen to a 5-year high of 80.7%. However, the euro recovered and ended that week just marginally lower thanks to rising Iran tensions, comment by a Fed official hinting at an early end to the current tightening campaign and some disappointing negative US data especially a sharp decline in the Philadelphia Fed manufacturing index in December from 10.9 to 3.3 against an expected rise to 14.9. Last week began with the euro rallying to over 1.23 on hawkish comments from ECB officials but the euro slid sharply thereafter to finish last Friday just under 1.21. The dollar rose across the board shrugging off dismal US data such as a much weaker than expected Q4 GDP number of 1.1% as also upbeat Eurozone data such as a rise in the German business confidence index to a 5-1/2 year high of 102 and instead benefiting from good reports on US durable goods orders and new home sales. The core PCE price index -- a measure of inflation the Federal Reserve watches closely -- rose 2.2 percent, above economists' forecasts for 1.6 percent. Consequently, market expectations of another Fed rate hike in March following the widely expected rate hike tomorrow have again risen from about 50% to about 75%.

This week could be turbulent with Greenspan's last FOMC meeting tomorrow followed by PMI data from the US and the Eurozone on Wednesday, ECB governing council meeting on Thursday and finally, the US non-farm payrolls report on Friday. From a technical perspective, there is still a risk of the euro dipping to about 1.1950 before resuming its corrective rally to 1.2450 enroute to 1.27.

GBP

Fortnightly movement: O-1.7772 H- 1.7938 L-1.7526 C-1.7674
Sentiment: good and will likely improve
Expected range for 1 Month: 1.7400 -1.8000
Expected range for 3 Months: 1.7400 -1.8300

Sterling moved parallel to the euro ending the fortnight about a cent down against the dollar but very marginally down against the euro. The impact of the upbeat German data, hawkish comments from ECB officials and the report of UK inflation easing down to the 2% target appeared to have been almost offset by the better-than-expected UK Q4 GDP growth of 0.6% and the MPC January meeting minutes showing the same 8-1 majority in favour of a status quo with 1 member voting for a rate cut.

There still appears to be a risk of a dip to about 1.74 before sterling resumes its corrective rally to 1.80 and then probably to 1.83.

JPY

Fortnightly movement: O-113.85 H- 117.46 L-113.78 C-117.35
Sentiment: neutral (for yen) but may turn positive again
Expected range for 1 Month: 112.00 -118.00
Expected range for 3 Months: 109.00 -118.00

Our expectation of a shallow dollar recovery to 115.50 proved to be unduly pessimistic. Bank of Japan upgraded its assessment of the Japanese economy but gave no hints of an early end to its ultra-loose monetary policy. Even last Friday's Japanese CPI data for December showing that annual core CPI was in the positive territory for the 2nd consecutive month seems to have had little impact.

The dollar has retraced about 50% of the sharp drop from 121.36 to 113.41. and may well be poised to resume its corrective decline. However, considering the stronger than expected dollar recovery, the downside targets over 1 month and 3 month time frames stand revised upwards to 112 yen and 109 yen respectively. Only a sustained dollar rise over 119 yen at this stage will probably point to a resumption of the dollar's uptrend.