Software & Finance - Monthly Magazine Online

Volume 3 - Issue 9

September 2013

Economics - Indian Rupee (INR) Getting Undervalued

USD/INR conversion peaked at 69.05915 on Aug 28, 2013. Most of the actions taken Indian government and RBI failed to derive interest towards INR. Investors around the world keep pulling money out of emerging market is not a good sign for India's economic growth in the near future. The current RBI interest rate is at 7.25%. If RBI increases the interest rate, then it can save the rupee but leads to crash in real estate market. But by reducing the interest rate further can help recovering home prices in India and can slump INR further by moving up the conversion rate USD/INR to more than 70. However not doing anything can lead to collapse of INR as well as home prices.



As expected, RBI started selling US$ from its reserve when USD/INR peaked near 70 on Aug 28, 2013. It is really a good idea to make the rupee stronger however it can help only in the short term. The real move would be increasing the interest rate, that can save the rupee and controll the inflation. It is the most of middle class man wanted. However it can lead to collapse the real estate market which many big investors and upper middle class people do not like the idea of real estate prices going down. In face, people can not tolerate even the correction. But if RBI increases the interest rate to make rupee stronger, then real estate prices will crash with domino effect of selling pressure in the real estate market.


Such a market correction on real estate might be very new to indian people and economy. But it is most common in developed countries. Even though India is coming under devloping nation / emerging market, it is fully developed on many areas including infrastructure. But the main issue the man power is still underestimated on labor sector and number of people living below poverty line is very high. By comparing the home prices in metropolitan citis with current prices and the prices before 10 years, it shot up by more than 10 - 15 times, which is unusal for the market.


Besides the ratio between average salary of a person suggests that renting in India is much cheaper compared to buying a home. The only advantage of buying home is appreciation of home prices by year over year. But it is already appreciated by more than 10 - 15 times, I do not see any significant upside in Indian real estate market.


The chances for crash in Indian Real Estate Market is going high every year. People in India may not care about speculation and bubble. But foreign insvestors and institutional investors do care about the fair value and overvalued assets. As soon as they pull the money out of stock market and sell or short the rupees, both stock market and real estate will crash no matter what RBI does it!