Monday, January 14, 2008

Economic Bubble in India

Economic Bubble, to be put simple, is the growth of SPECUALTIVE FINANCIAL SITUATION, that would end up in economic imbalance when the bubble burst.




WHY IN INDIA???

Currently the youth in India are earning handsome money and thier next action is to grow the excess money in their bank accounts. The Real-Estate business people got hold of this trend and started to build apartments everywhere and selling it double/triple the original cost. Say, it costs 15 Crore INR to build a apartment. The Real-estate people sell indivual houses in the apartment for higher cost and making 40 to 50 Crore INR out of it. All this profit is just because of the "SPECULATIVE" investment of the youths. I know many people who just get a Housing Loan of around 20 Lakhs INR. Every month they pay 18,000 INR for housing loan EMI and this has to proceed for 10 Years !!!! Still the youth are ready to pay for it !!!

Ok now lets see how this causes a BUBBLE. As per the definition of bubble the money invested is purely speculative. In next 10 years from now if the 30 Lakhs flat downs to 20 Lakhs what will be the impact??? Although many people think this will not work this way, It Actually Does... Yes, it is !?!

In such a case the money lost as a whole by the society is large and it happens all at a time. In addition if the housing loan rates increase (though by a small margin say 1%) then the youths end up in paying huge money than they expect.

HOW THE PRICE WILL GO LOW ???

This is indeed a speculation ! Still there is good chances of price fall. IT industry is the back bone for all these house purchasing youths. They also invest in Mutual Funds/Share Market which in turn is a speculation. Because of this spree in investing, many people dont even analyse the actual value of the company on which they invest. So now people end up in buying shares for more than the company worth. In few years they will get to know that the company makes less profit and they obviously loose money in share-market.

Presently, because of this speculative investment in Share-Market (also from foreigners) and IT industry's foreign money the Indian economy increases (i.e. the money value increases. Currently it is 38 INR equals a US dollar. It is far more than 48 INR equals a US dollar a year ago !!!). This results in IT industry's low profit than usual. So the IT industry's clients will start looking at low price zones like china/Indonesia/etc... In such a case the Indian IT industry further face low profits.

Now starts the employee firing in the Indian IT companies. Yo man.. few IT youths will be fired. If the guy who gets fired is paying the so called Housing Loan of 18,000 INR per month, he is now in TROUBLE. He will be struggling hard to manage the situation because his plans got spoiled !!#&#*&(. Poor Chap--!!!

Now comes the House Selling for urgency !!! Wow, I would like to get his house by then. Infact for cheaper price than he invested. There is no other go for him at that moment. Because no one will invest money when their income is already a trouble. As this cycle follows with many fellas there will be logrithmic fall of prices.

NOW IT IS THE TIME TO GET SCREWED BY THE ECONOMIC BUBBLE. Iam waiting to see people get screwed :)