rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Why India Inc needs to be cautious while dealing with China

Why India Inc needs to be cautious while dealing with China

March 09, 2014 10:17 IST

Why India Inc needs to be cautious in dealing with China

     Next

Next

A few Indian companies have learnt how to manage risk arising from volatile currency, but many have not this skill and as a result red ink shows up on their balance balance sheets.

There are people who love horses, and there are people who are curious about them but don’t really know what to do with them.

As a kid, I was drawn to horses in the abstract through the pages of the Cole, the ubiquitous-about-the-house-during-the-horse-racing-season bible, about what was going to happen on the next race day.

With the entire family-- from grandmother down -- always trying to make a buck at the track, my young mathematically inclined mind was drawn to the form sheet and, quite often-- beginner’s luck or, perhaps, simple objectivity-- I was able to select long-priced horses that brought in the goods.

Click NEXT to read more....


Image: One should tread cautiously in a volatile currency market
Photographs: Reuters

     Next

Why India Inc needs to be cautious in dealing with China

Prev     Next
Prev

Next

A decade or so later, as a never-do-well student, I got drawn to the track in my own effort to make money.  

With a close friend, I became extremely successful, and, before I turned 20, made what seemed like a fortune and ended up buying more than a dozen horses, all away from family eyes.

The bonus was that, going to the stables, I began to really get a sense of horses for the fine, grand animals they were.  

Unfortunately, the success didn’t last and by the time I headed overseas to graduate school, I had reverted to being an only modestly endowed -- financially speaking, that is -- young student. 

I visited the track in the United States a few times, but it was ever more abstract compared to the real thing.

Click NEXT to read more...


Image: Cautious investment can yield good returns
Photographs: Reuters

Prev     Next

Why India Inc needs to be cautious in dealing with China

Prev     Next
Prev

Next

A few decades later, riding – or, more correctly, being led on – a horse in Mahabaleshwar, I tried to dismount and found my foot tangled in the stirrup and discovered that it was a long way from the back of the horse to the ground. I’ve learned to be more careful about horses since then.  

Now, this is the Chinese Year of the Horse and, given that China is already India’s largest trading partner, there is, perhaps, a lesson for companies that are doing business with China.

Click NEXT to read more......


Image: China is considered largest trading partner of India
Photographs: Reuters

Prev     Next

Why India Inc needs to be cautious in dealing with China

Prev     Next
Prev

Next

This past week’s sudden fall in the yuan, after almost a decade of inching strength, is doubtless something to take note of. As is well known, the yuan was devalued savagely in 1994, after which it was kept steady at 8.27 to the dollar till 2005, during which time the Chinese export juggernaut changed the face of global trade.

By this time, China had become the second most important country in the world and, naturally enough, it shifted gears to develop its domestic market. Part of this was permitting the yuan to appreciate in, of course, a controlled fashion.

The evolution has not been without hiccups, but it is clear that the Chinese are staying the course and there has been a lot of talk about making the currency more flexible in preparation for full internationalisation.  

The move last week appears to be part of this strategy. Clearly, yuan volatility is going to rise, and, irrespective of the efforts of the Chinese central bank, at some points in time, rise uncontrollably.

Click NEXT to read more.....


Image: Volatility in Yuan is expected to rise
Photographs: Reuters

Prev     Next

Why India Inc needs to be cautious in dealing with China

Prev     Next
Prev

Next

Indian companies know just how devastating dramatic currency volatility can be. Since 2009, rupee volatility has moved between four per cent and 20 per cent with an average of over nine per cent--- and four episodes of sustained 12+ per cent volatility.  

While some Indian companies have learned how to manage this risk, many have not and it has resulted in much red ink on balance sheets; it is also partly responsible for the currently increasing non-performing assets in the banking sector.  

A recent survey has shown that 84 per cent of Indian CEOs cited exchange rate volatility as their number one problem.

Click NEXT to read more.....


Image: Some Indian corporate houses have learnt to manage currency risk well
Photographs: Reuters

Prev     Next

Why India Inc needs to be cautious in dealing with China

Prev     Next
Prev

Next

Indian companies know just how devastating dramatic currency volatility can be. Since 2009, rupee volatility has moved between four per cent and 20 per cent with an average of over nine per cent--- and four episodes of sustained 12+ per cent volatility.  

While some Indian companies have learned how to manage this risk, many have not and it has resulted in much red ink on balance sheets; it is also partly responsible for the currently increasing non-performing assets in the banking sector.  

A recent survey has shown that 84 per cent of Indian CEOs cited exchange rate volatility as their number one problem.

Click NEXT to read more.....


Image: India Inc is learning to deal with volatility in rupee
Photographs: Reuters

Prev     Next

Why India Inc needs to be cautious in dealing with China

Prev     Next
Prev

Next

Chinese companies have near-zero experience in dealing with currency volatility. Since 2009, the average volatility of the yuan has been just a bit over one per cent, with a high of under three per cent.

Thus, as the yuan internationalises, Chinese companies will have to go through a very steep learning curve, with likely equally difficult results.

This should be a signal not only for investors, but also for Indian companies doing business with China. 

Click NEXT to read more......


Image: China's central bank governor Zhou Xiaochuan
Photographs: Jason Lee/Reuters

Prev     Next

Why India Inc needs to be cautious in dealing with China

Prev     More
Prev

More

From anecdotal reports, Chinese business ethics are, to use a racist euphemism, inscrutable, and there have been any number of occasions when Chinese buyers/sellers have not honoured contracts when commodity prices moved dramatically.

But since they were at the time the second-biggest daddy, Indian companies had little option but to live with it.  

Now China is the biggest daddy of all and will soon have one more wildly unpredictable – and all-pervading, as far as trade goes – variable to deal with.

Companies need to build in an increased risk of default as an additional cost of doing business in China, and, indeed, into their strategy in terms of investment and long-term business planning.

This is the Year of the Horse -- be ever more careful


Image: Chinese guards stand near the India-China border at Nathula, Sikkim
Photographs: Desmond Boylan/Reuters

Prev     More
Source: