TERM

PAPER
“INDIAN COMPANIES LISTED ON
FOREIGN EXCHANGE:
IMPLICATIONS ON THE
COMPANY AND ECONOMY”

SUBMITTED TO:- SUBMITTED BY:-

Mr. BHAVDEEP S. SANSKRITI KIRAN

KOCHAR
ROLL NO- A03
SEC- T1001
REG. NO- 11003630

BUSINESS ENVIRONMENT

INTRODUCTION:- FOREIGN EXCHANGE

The foreign exchange market (forex, FX, or currency market) is a worldwide
decentralized over-the-counter financial market for the trading of currencies.
Financial centers around the world function as anchors of trading between a wide
range of different types of buyers and sellers around the clock, with the exception of
weekends. The foreign exchange market determines the relative values of different
currencies.

The primary purpose of the foreign exchange market is to assist international trade
and investment, by allowing businesses to convert one currency to another currency.
For example, it permits a US business to import British goods and pay Pound
Sterling, even though the business's income is in US dollars. It also supports
speculation, and facilitates the carry trade, in which investors borrow low-yielding
currencies and lend (invest in) high-yielding currencies, and which (it has been
claimed) may lead to loss of competitiveness in some countries.

In a typical foreign exchange transaction, a party purchases a quantity of one

currency by paying a quantity of another currency. The modern foreign exchange
market began forming during the 1970s when countries gradually switched to floating
exchange rates from the previous exchange rate regime, which remained fixed as
per the Bretton Woods system.

The foreign exchange market is unique because of

• its huge trading volume, leading to high liquidity;

• its geographical dispersion;
• its continuous operation: 24 hours a day except weekends, i.e. trading from
20:15 GMT on Sunday until 22:00 GMT Friday;
• the variety of factors that affect exchange rates;
• the low margins of relative profit compared with other markets of fixed income;
and
• the use of leverage to enhance profit margins with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect
competition, notwithstanding market manipulation by central banks.[citation needed]
According to the Bank for International Settlements,[3] as of April 2010, average daily
turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of
approximately 20% over the $3.21 trillion daily volume as of April 2007.

The $3.98 trillion break-down is as follows:

• $1.490 trillion in spot transactions

• $475 billion in outright forwards
• $1.765 trillion in foreign exchange swaps
• $43 billion currency swaps
• $207 billion in options and other products
• Market size and liquidity
 •
•
• Main foreign exchange market turnover, 1988–2007, measured in billions of
USD.
• The foreign exchange market is the largest and most liquid financial market in
the world. Traders include large banks, central banks, currency speculators,
corporations, governments, and other financial institutions. The average daily
volume in the global foreign exchange and related markets is continuously
growing. Daily turnover was reported to be over US$3.98 trillion in April 2010
by the Bank for International Settlements.[3]
• Of the $3.98 trillion daily global turnover, trading in London accounted for
around $1.85 trillion, or 36.7% of the total, making London by far the global
center for foreign exchange. In second and third places respectively, trading
in New York City accounted for 17.9%, and Tokyo accounted for 6.2%.[4] In
addition to "traditional" turnover, $2.1 trillion was traded in derivatives.
• Exchange-traded FX futures contracts were introduced in 1972 at the Chicago
Mercantile Exchange and are actively traded relative to most other futures
contracts.
• Several other developed countries also permit the trading of FX derivative
products (like currency futures and options on currency futures) on their
exchanges. All these developed countries already have fully convertible
capital accounts. Most emerging countries do not permit FX derivative
products on their exchanges in view of prevalent controls on the capital
accounts. However, a few select emerging countries (e.g., Korea, South
Africa, India—[1]; [2]) have already successfully experimented with the
currency futures exchanges, despite having some controls on the capital
account.
• FX futures volume has grown rapidly in recent years, and accounts for about
7% of the total foreign exchange market volume, according to The Wall Street
Journal Europe (5/5/06, p. 20).
Top 10 currency traders [5]
% of overall volume, May 2010 • Foreign exchange trading
Rank Name Market share increased by 38% between
1 Deutsche Bank 18.06% April 2005 and April 2006 and
2 11.30% has more than doubled since
UBS AG
2001. This is largely due to the
3 Barclays Capital 11.08% growing importance of foreign
4 Citi 7.69% exchange as an asset class
5 Royal Bank of Scotland 6.50% and an increase in fund
6 JPMorgan 6.35% management assets,
7 HSBC 4.55%

Credit Suisse 4.44%

8
9 Goldman Sachs 4.28%
10 Morgan Stanley 2.91%
 particularly of hedge funds and pension funds. The diverse selection of
execution venues have made it easier for retail traders to trade in the foreign
exchange market. In 2006, retail traders constituted over 2% of the whole FX
market volumes with an average daily trade volume of over US$50-60 billion
(see retail trading platforms).
• Because foreign exchange is an OTC market where brokers/dealers negotiate
directly with one another, there is no central exchange or clearing house. The
biggest geographic trading centre is the UK, primarily London, which
according to IFSL estimates has increased its share of global turnover in
traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. Due
to London's dominance in the market, a particular currency's quoted price is
usually the London market price. For instance, when the IMF calculates the
value of its SDRs every day, they use the London market prices at noon that
day.
• The ten most active traders account for 77% of trading volume, according to
the 2010 Euromoney FX survey.[7] These large international banks continually
provide the market with both bid (buy) and ask (sell) prices. The bid/ask
spread is the difference between the price at which a bank or market maker
will sell ("ask", or "offer") and the price at which a market taker will buy ("bid")
from a wholesale or retail customer. The customer will buy from the market-
maker at the higher "ask" price, and will sell at the lower "bid" price, thus
giving up the "spread" as the cost of completing the trade. This spread is
minimal for actively traded pairs of currencies, usually 0–3 pips. For example,
the bid/ask quote of EURUSD might be 1.2200/1.2203 on a wholesale broker.
Minimum trading size for most deals is usually 100,000 units of base
currency, which is a standard "lot".
• These spreads might not apply to retail customers at banks, which will
routinely mark up the difference to say 1.2100/1.2300 for transfers, or say
1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market
makers vary, but on EURUSD are usually no more than 3 pips wide (i.e.,
0.0003). Competition is greatly increased with larger transactions, and pip
spreads shrink on the major pairs to as little as 1 to 2 pips.

Market participants

Financial markets

Public market

Exchange
 Securities
Bond market

Fixed income
Corporate bond
Government bond
Municipal bond
Bond valuation
High-yield debt
Stock market

Stock
Preferred stock
Common stock
Registered share
Voting share
Stock exchange
Derivatives market

Securitization
Hybrid security
Credit derivative
Futures exchange

OTC, non organized

Spot market
Forwards
Swaps
Options
Foreign exchange

Exchange rate
Currency

Other markets

Money market
Reinsurance market
Commodity market
Real estate market
Practical trading

Participants
Clearing house
Financial regulation
 Finance series
Banks and banking
Corporate finance
Personal finance
Public finance
v•d•e

Unlike a stock market, the foreign exchange market is divided into levels of access.
At the top is the inter-bank market, which is made up of the largest commercial
banks and securities dealers. Within the inter-bank market, spreads, which are the
difference between the bid and ask prices, are razor sharp and usually unavailable,
and not known to players outside the inner circle. The difference between the bid
and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the
EUR). This is due to volume. If a trader can guarantee large numbers of transactions
for large amounts, they can demand a smaller difference between the bid and ask
price, which is referred to as a better spread. The levels of access that make up the
foreign exchange market are determined by the size of the "line" (the amount of
money with which they are trading). The top-tier inter-bank market accounts for 53%
of all transactions. After that there are usually smaller banks, followed by large multi-
national corporations (which need to hedge risk and pay employees in different
countries), large hedge funds, and even some of the retail FX-metal market makers.
According to Galati and Melvin, “Pension funds, insurance companies, mutual funds,
and other institutional investors have played an increasingly important role in
financial markets in general, and in FX markets in particular, since the early 2000s.”
(2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–
2004 period in terms of both number and overall size” Central banks also participate
in the foreign exchange market to align currencies to their economic needs.

Banks
The interbank market caters for both the majority of commercial turnover and large
amounts of speculative trading every day. A large bank may trade billions of dollars
daily. Some of this trading is undertaken on behalf of customers, but much is
conducted by proprietary desks, trading for the bank's own account. Until recently,
foreign exchange brokers did large amounts of business, facilitating interbank trading
and matching anonymous counterparts for large fees. Today, however, much of this
business has moved on to more efficient electronic systems. The broker squawk box
lets traders listen in on ongoing interbank trading and is heard in most trading rooms,
but turnover is noticeably smaller than just a few years ago.

Commercial companies
An important part of this market comes from the financial activities of companies
seeking foreign exchange to pay for goods or services. Commercial companies often
trade fairly small amounts compared to those of banks or speculators, and their
trades often have little short term impact on market rates. Nevertheless, trade flows
are an important factor in the long-term direction of a currency's exchange rate.
Some multinational companies can have an unpredictable impact when very large
positions are covered due to exposures that are not widely known by other market
participants.

Central banks
National central banks play an important role in the foreign exchange markets. They
try to control the money supply, inflation, and/or interest rates and often have official
or unofficial target rates for their currencies. They can use their often substantial
foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of
central bank "stabilizing speculation" is doubtful because central banks do not go
bankrupt if they make large losses, like other traders would, and there is no
convincing evidence that they do make a profit trading.

Forex Fixing
Forex fixing is the daily monetary exchange rate fixed by the national bank of each
country. The idea is that central bank use the fixing time and exchange rate to
evaluate behavior of their currency. Fixing exchange rates reflects the real value of
equilibrium in the forex market. Banks, dealers and online foreign exchange traders
use fixing rates as a trend indicator.

The mere expectation or rumor of central bank intervention might be enough to

stabilize a currency, but aggressive intervention might be used several times each
year in countries with a dirty float currency regime. Central banks do not always
achieve their objectives. The combined resources of the market can easily
overwhelm any central bank Several scenarios of this nature were seen in the 1992–
93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90% of the foreign exchange transactions are speculative. In other
words, the person or institution that bought or sold the currency has no plan to
actually take delivery of the currency in the end; rather, they were solely speculating
on the movement of that particular currency. Hedge funds have gained a reputation
for aggressive currency speculation since 1996. They control billions of dollars of
equity and may borrow billions more, and thus may overwhelm intervention by
central banks to support almost any currency, if the economic fundamentals are in
the hedge funds' favor.
Investment management firms
Investment management firms (who typically manage large accounts on behalf of
customers such as pension funds and endowments) use the foreign exchange
market to facilitate transactions in foreign securities. For example, an investment
manager bearing an international equity portfolio needs to purchase and sell several
pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currency
overlay operations, which manage clients' currency exposures with the aim of
generating profits as well as limiting risk. Whilst the number of this type of specialist
firms is quite small, many have a large value of assets under management (AUM),
and hence can generate large trades.

Retail foreign exchange brokers

Retail traders (individuals) constitute a growing segment of this market, both in size
and importance. Currently, they participate indirectly through brokers or banks. Retail
brokers, while largely controlled and regulated in the USA by the CFTC and NFA
have in the past been subjected to periodic foreign exchange scams. To deal with
the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements,
particularly in relation to the amount of Net Capitalization required of its members. As
a result many of the smaller, and perhaps questionable brokers are now gone.

There are two main types of retail FX brokers offering the opportunity for speculative
currency trading: brokers and dealers or market makers. Brokers serve as an agent
of the customer in the broader FX market, by seeking the best price in the market for
a retail order and dealing on behalf of the retail customer. They charge a commission
or mark-up in addition to the price obtained in the market. Dealers or market makers,
by contrast, typically act as principal in the transaction versus the retail customer,
and quote a price they are willing to deal at—the customer has the choice whether or
not to trade at that price.

In assessing the suitability of an FX trading service, the customer should consider

the ramifications of whether the service provider is acting as principal or agent.
When the service provider acts as agent, the customer is generally assured of a
known cost above the best inter-dealer FX rate. When the service provider acts as
principal, no commission is paid, but the price offered may not be the best available
in the market—since the service provider is taking the other side of the transaction, a
conflict of interest may occur

FOREIGN EXCHANGE DEALER’S

ASSOCIATION OF INDIA
Foreign Exchange Dealer's Association of India (FEDAI) was set up in 1958 as an
Association of banks dealing in foreign exchange in India (typically called
Authorised Dealers - ADs) as a self regulatory body and is incorporated under
Section 25 of The Companies Act, 1956. It's major activities include framing of
rules governing the conduct of inter-bank foreign exchange business among
banks vis-à-vis public and liaison with RBI for reforms and development of forex
market.

Presently some of the functions are as follows:

• Guidelines and Rules for Forex Business.

• Training of Bank Personnel in the areas of Foreign Exchange Business.
• Accreditation of Forex Brokers
• Advising/Assisting member banks in settling issues/matters in their
dealings.
• Represent member banks on Government/Reserve Bank of India/Other
Bodies.
• Announcement of daily and periodical rates to member banks.

Due to continuing integration of the global financial markets and increased pace
of de-regulation, the role of self-regulatory organizations like FEDAI has also
transformed. In such an environment, FEDAI plays a catalytic role for smooth
functioning of the markets through closer co-ordination with the RBI, other
organizations like FIMMDA, the Forex Association of India and various market
participants. FEDAI also maximizes the benefits derived from synergies of
member banks through innovation in areas like new customized products, bench
marking against international standards on accounting, market practices, risk
management systems, etc.

INDIAN COMPANIES LISTED ON FOREIGN

MARKET:- FRANKFURT STOCK EXCHANGE

Activity of Indian companies on the Frankfurt Stock Exchange has been impressive
to say the least. At Deutsche Börse, all Indian equity instruments are actively traded
within the unregulated market. Deutsche Börse‘s Indian equity instruments are
significantly more liquid compared to London SE and Luxembourg SE. Companies
from almost all sizes are most liquid at Deutsche Börse.

In total about € 1.5 bn is invested in Indian companies by German investors. The

biggest German investor is DWS.

IT / Telecom, Utilities / Energy, Financials, Automobile and Consumers are the major
focus of German Investors. These hot topic sectors are the corner stone of the
Indian economy and make for great IPO and listing candidates.

In February 2007 the Deutsche Borse AG (Frankfurt Stock Exchange) purchased 5%

of the Bombay Stock Exchange (BSE) which led to the November 2008 cooperation
agreement in which both partners agreed to simplify access to their stock exchanges
for companies in their respective markets.

Examples of Indian Listed Companies

AXIS BANK LTD

BAJAJ HLDG+INDV.GDR S IR10

CROMPTON GREAVES

DR REDDYS LABS

FINL TECHS I.GDR REG S/7

GAIL INDIA

GT EASTERN ENERGY

HDFC BANK LTD

ICICI BANK LTD ADR/2

INDIABULLS REAL

INFOSYS TECHS

LARSEN+TOUBRO

MAHANAGAR TELE NIG.

MAHINDRA+MAHIN.GDR/REG.S

PATNI COMP. SYS

RANBAXY LABORATORY
REDIFF.COM I.ADR0,5 IR-05

RELIANCE INFRASTRUCTURE

RELIANCE INDUSTRIES

SATYAM COMPUTER

SIFY TECHNOLOGIES LTD

STATE BANK OF INDIA

STEEL AUTH. OF. IND

STERLITE IND

SUZLON ENERGY LTD

TATA COMMUNICATIONS

TATA MOTORS

TATA STEEL

WIPRO LTD

Reasons For Indian Companies to

List:
The liquidity situation of the different international stock exchanges has shown that,
in general, liquidity in stock trading in Frankfurt is significantly higher. Greater
liquidity through higher trading volumes is a good basis for a fair valuation of a
company on the capital markets.

The approved indices of the Frankfurt Stock Exchange increase the visibility of
Indian companies and attract the attention of Indian and European investors alike. In
Germany, Indian companies come together with analysts with expertise in a specific
sector, especially in those sectors where Germany is particularly strong.

Companies can access investors all over the world through the Xetra trading
platform of the Frankfurt Stock Exchange. Currently, a total of over 250 trading
members are listed on XETRA.

A range of market segments which allow issuers to choose the market segment that
best suits them, taking into account access criteria, post-admission obligations and
the objectives pursued by the listing. The listing procedure at the Frankfurt Stock
Exchange is one of the fastest in the world and the listing fees are highly attractive
compared to other international Frankfurt Stock Exchange competitors.
Particularities In Connection With Indian Issuers One specific concern for Indian
issuers is that, according to Indian law, a direct listing of shares of an Indian
company on a foreign stock exchange is not possible. A direct admission would be
conceivable only via a holding structure if the holding (and issuer of the shares to be
admitted) has its registered office outside of India and only the operational
companies are located in India. Due to common language and laws, it is
recommended this would be done via a UK Holding Company.

Choice Of Market Segments On The Frankfurt Stock Exchange Issuers at the

Frankfurt Stock Exchange can choose between the Regulated Market (General
Standard/ Prime Standard) and the stock exchange only-regulated Open Market
(First/Second Quotation Board and Entry Standard). In principle, access to the
Regulated Market is only possible with a securities prospectus approved by the
supervisory authority in the issuer’s home member state within the European
Economic Area (EEA). Moreover, issuers in the Regulated Market are subject to the
post-admission obligations of the EU Transparency Directive as implemented in
German law. As regards post-admission obligations, the Prime Standard offered by
the Frankfurt Stock Exchange to its issuers is a quality segment that imposes even
stricter requirements on issuers than the EU Transparency Directive.

Admission to the Open Market (First Quotation Board and Entry Standard segments)
does not in require a securities prospectus. In this respect and in comparison to
some European competitors requiring a document similar to a prospectus for
admission to their stock exchange regulated market segments, the Frankfurt Stock
Exchange provides easier, faster and less costly access to capital markets,
especially as the drafting of a securities prospectus or comparable document is both
time consuming and costly for the issuer.

Whereas no post-listing obligations have to be observed for the First Quotation

Board segment listing, issuers for the Entry Standard undertake to comply with
certain post-listing reporting requirements.

SOME INDIAN COMPANIES LISTED ON

LONDON STOCK MARKET:-
ACC LTD
AMTEK AUTO
ASHOK LEYLAND
AXIS BANK LTD
BAJAJ AUTO
CESC
CROMPTON GREAVES
EIH
ELECTROSTEEL CASTINGS
FEDERAL BANK
GAIL(INDIA)
GREAT EASTERN ENERGY CORP
HEXAWARE TECHNOLOGIES LD
HIMACHAL FUTURISTIC COMMUNICATIONS
INDIAN HOTELS CO(THE)
LLOYD ELECTRIC & ENGINEERING
NOIDA TOLL BRIDGE CO
REI AGRO
RELIANCE ENERGY
ROLTA INDIA
SIEL
SREI INFRASTRUCTURE FINANCE
SSI
STATE BANK OF INDIA
STEEL AUTHORITY OF INDIA
SUBEX AZURE LTD
TATA TEA

Indian companies listed on the London Stock Exchange (LSE) continued to

outperform others in the first quarter of 2010, with industry observers expecting more
Indian entities to list on the exchange to raise funds in the near future.

Share prices of Indian companies listed on LSE continue to outperform both the AIM
All-Share and the FTSE 100, according to India Watch, a quarterly review due to be
released by business and financial adviser Grant Thornton.

AIM is the LSE's international market for smaller growing companies.

A wide range of businesses, including early stage, venture capital backed as well as
more established companies join AIM seeking access to growth capital.

The adviser said a host of Indian companies were closely watching Indian energy
major Essar Energy's planned 1.6 billion pound listing of a minority stake to decide if
they too should seek a listing in London.

Anuj Chande, head of Grant Thornton's south Asia group, said: "The outstanding
performance of Indian firms listed in London is encouraging other Indian firms to look
into raising funds here.

In early March, more than 70 Indian firms attended a roadshow hosted by the
London Stock Exchange in New Delhi, Mumbai and Hyderabad."

He added: "A lot of these will be holding their breath to see if Essar Energy can pull
off the biggest primary listing that London has seen in ten years."

Chande said Grant Thornton was in advanced negotiations with another Indian
power provider for an initial public offering it planned in London later this year.

Ten more Indian companies were planning to raise capital in London this year, he
revealed.
The India Watch index rose 8 per cent in the first quarter of 2010 and is 3.4 times
higher than twelve months earlier, having risen a staggering 237 per cent since April
1, 2009.

By comparison, the AIM All-Share recorded gains of 70 per cent since April 1, 2009,
while the FTSE 100 has seen a 45 per cent rise.

In the first quarter of 2010, the AIM All-Share rose by 7.5 per cent, while the FTSE
100 was 5 per cent up.

"Indian stocks listed in London are showing a robust performance. Our India Watch
Index shows that they have achieved a remarkable 70 per cent rise since the eve of
the credit crisis in January 2007," Chande said.

The India Watch index has also outperformed other indices in previous years: Since
its inception in 2007, the India Watch price index has gained 70 per cent.

IMPLICATION ON INDIAN COMPANIES

AND ECONOMY:-
With a gross domestic product that is growing by more than 7 percent a year, India
has made remarkable progress since opening its economy, in 1991. The country has
accomplished this feat despite the substantial handicap of an underdeveloped
financial
sector.
At about $900 billion, India's stock of financial assets—including bank deposits,
equities, and debt securities—is one-fifth the size of China's (Exhibit 1).1 The gap is
widening: by 2010, China's financial stock will reach $9 trillion, while India's will
remain below $2 trillion.

But in allocating capital, particularly to private companies, India's financial system is

more effective than China's, largely because the market share of more efficient
foreign and privately owned banks in India has crept up to 25 percent. Many
nonperforming loans have been cleaned up, and while the true figure is hard to
determine, they are now estimated at around 9 percent of all lending,2 compared
with
up to 40 percent in China. India's stock market is booming, and its best companies
list
shares abroad.
Still, to finance economic growth, India must raise its investment rate substantially,
as
McKinsey Global Institute (MGI) research shows. If that is to happen, the financial
system must mobilize savings more effectively—a goal that calls for reducing the
government's fiscal deficit, which crowds out private investment, and for reforming
banks and capital markets. The government resists these steps for fear of job losses.
Ultimately, however, the effect would be to create hundreds of thousands of new
jobs
in the financial sector and to generate faster growth in the whole economy.
Elusive savings
Why is the stock of financial assets so small? Not because Indians save too little:
although the country's gross national savings rate is half of China's, it isn't bad by
international standards (Exhibit 2). Furthermore, chronic government budget deficits
depress the savings rate. Despite the fact that Indians should save more, the main
challenge is to capture more of the existing savings.
India nationalized banks in 1969 in order to provide banking service to the masses.
But penetration is low: just 40 percent of households have signed up as borrowers or
depositors. Deposits represent 60 percent of GDP, compared with 190 percent in
China and 142 percent in Japan.
India's capital markets have hardly done better to mobilize savings. Retail investors
are few, though the stock market lists roughly 5,000 companies, has a market
capitalization that (at roughly 50 percent of GDP) is comparable to the eurozone's,
and offers a variety of derivatives and other complex products. Corporate bonds
make
up 1 percent of India's stock of financial assets, compared with 10 percent in
Thailand,
20 percent in Malaysia, and 30 percent or more in South Korea, the United States,
and
most of Europe.
Instead of putting money into financial assets, Indian households invest more than
half of their savings in physical ones such as land, houses, cattle, and gold (Exhibit
3).
In rural areas, the proportion is even higher. In fact, India's people—mistrustful of
banks—are the world's largest consumers of gold. They possess $200 billion of it,
equal to nearly half of the country's bank deposits, and last year bought $10 billion
worth, nearly twice the amount of the foreign direct investment India received.
Households could earn higher returns by investing in financial assets, and the
country
would be better off if savings were pooled to finance more productive investments.
Efficiency: India's advantage
Room for improvement remains, but the Indian financial system is better than its
Chinese counterpart at allocating capital, as demonstrated by India's improving level
of nonperforming loans and the amount of capital funneled to private industry. India's
banks have made a big effort over the past two years to clean up nonperforming
loans.
Although the current level is still higher than it is in developed countries, it is a
fraction of China's. Continuing to follow good lending policies will be vital. As the
low interest rates that have recently kept some loans afloat start to rise, banks will
probably be tested.
Private-sector companies in India have better access to funds than do those in
China.
Small and midsize enterprises account for 45 percent of India's bank loans to
businesses and generate 23 percent of the industry's revenues. According to the
World
Bank, 54 percent of small and midsize Indian companies had access to bank
overdraft
facilities in 2002, as compared with 26 percent of Chinese ones.3 All but 60 of the
roughly 5,000 companies listed on the Bombay Stock Exchange are privately owned
or foreign joint ventures, which together account for roughly 70 percent of its market
cap. Private-sector companies represent a small fraction of the market cap of the
Shanghai Stock Exchange.
Nonetheless, capital could be allocated more efficiently. The Reserve Bank of India
still insists that priority sectors (such as agriculture and small business) receive at
least 40 percent of all loans and advances and that 25 percent of all bank branches
serve rural and semi-urban areas. These requirements distort lending decisions and
operational efficiency. Of the loans to priority sectors, 23 percent, far higher than the
level elsewhere in the economy, end up as nonperforming—evidence that the scale
of
this lending makes little sense (see "What Indian consumers want from banks").
What's more, "lazy banking" constrains lending. Interest rates in India fell constantly
over the past decade, and as bond prices rose banks could make easy money by
using
deposits to buy government bonds financing the fiscal deficit. Windfall treasury gains
made banks more profitable but crowded out lending and private investment. Indian
banks hold government bonds equal to 46 percent of their deposits, far more than
the
statutory minimum and nearly equal to their lending.4 In 2003, two-thirds of the new
assets that India's commercial banks acquired were government securities. Over the
past year, however, interest rates have stabilized and the banks are realizing that
they
must focus again on lending.

CONCLUSION:-

I presume that you are talking about the impact of Dollars on the Indian
Economy. If the Dollars become cheaper in terms of Indian Rupees, it would
benefit the Indian Importers as then they would have to pay lesser rupees to
buy Dollars for making payment to the American exporters and the Indian
Exporters will suffer as they would receive less Indian Rupees after converting
their receipts in Dollars to Indian Rupees . In case the US DOLLAR becomes
expensive in terms of Indian Rupees, then the Indian Importers will suffer as
they would then have to shell out more Rupees to buy dollars for making
payment to American Exporters and Indian Exporters would benefit as now
they would receive more Rupees after converting their Dollar Receipts.

If the Indians perceive the Results of US ELECTION to be favourable to the

Indian Economy, then the demand for US DOLLARS by Indians could rise
and this would make the Dollars expensive in terms of the Indian Rupees and
vice versa.

THANK YOU