History ‘rupee-ding’ itself?

We bring you a collection of ad hoc observations, news snippets and quirky musings that we hope you will find informative, interesting and enlightening.

Obsolete technology. Stop. Must innovate. Start.
In July this year, the last telegram sent in India was booked in a Central Telegraph Office in New Delhi, marking the end of a 160-year service that provided ordinary people with an express means of communication. The telecommunications ministry said the service had lost GBP165 million in the past seven years.

At its peak in the mid-1980s, more than 45,000 telegraph offices were spread across the country, with tens of thousands of telegraph workers and delivery men dispatching more than 600,000 telegrams each day. To put that into context, Walmart - currently the world's largest retail chain - has more than 10,800 outlets in 27 countries, employing 2.2 million people worldwide (1.3 million in the U.S.).

Email, landlines and mobile phones have proliferated because they offer convenience and (almost) instant delivery at accessible prices. In India, there are close on 870 million mobile phone subscribers. That's 70% of the country's population and a number that equates to 1.3
times the combined population of the U.S. and the Eurozone. Clearly, mobile communications is a commoditised service with significant economies of scale: "if you can collect just USD1 from each subscriber per year....".

That business model might indeed apply in some instances. For example, WhatsApp, a popular mobile instant messaging service with 300 million active users worldwide per month, charges USD0.99 cents per user. But mobile phone and other foreign companies in India have found the market difficult to crack. Foreign and domestic companies alike cite red tape, corruption and other structural impediments dissuading them from investing in the economy.

Faced with slowing economic growth, persistent current account deficits and the prospect of less capital inflows to plug the deficit - especially in light of expectations that the U.S. Federal Reserve will begin to taper its bond purchases - the Indian rupee hit an all-time low recently. In an effort to bolster the currency and curb capital outflows, the central bank tightened restrictions on Indian residents and companies from investing abroad. Rather than addressing the core structural problems in the economy, the authorities have sealed the exit doors. That seems to be telegraphing a message of panic to the financial markets.

William Liu – Chief Investment Officer, RealFin Capital Partners