Sri Lankan Rupee fiasco

Money matters the most, so it’s important to get updated our self to the current economic scenarios related to the Rupee and its possible impact on our day to day life, here I have written a brief report on current stance of Rupee and its repercussions on the economy.

In the recent times there have been many news bulletins, reports, debates and parliament arguments regarding the depreciation pressure on Sri lanka rupees over semi strong US dollar ever since president announced the devaluation of the rupee by 3% against US dollar during his budget 2012 speech by November 2011, there were talks that he has not discussed with Central Bank governing body of Monetary Board of Sri lanka, regarding the devaluation of currency and it has purely made at sole responsibility under President as his capacity of minister of finance, but the trueness of which is still questionable, and also we have seen the dispute between the governor of central bank and the secretary of finance over the free floatation of the currency after Central Bank being involved in exchange market and defended the Rupee at 113 level continuously for 51 sessions by selling nearly $ 2.6 Billion of Dollars to carve the demand, which is one third of the foreign reserve and have put trade of balance accounts under risk lower level ( the adequate level of reserves should support six months imports ).

Secretary of finance in the view of free and clear floatation where as Central Bank more into intervene floatation in order to safe guards import costs and possible demand side inflation, although it said to be inflation rate under control with annual average rate with 6.7% and year on year inflation rate is 4.9% by December 2011, the intervene of the CB on floatation also came under fire by the IMF officials they are yet to pour last tranche of $800 million of $ 2.4 Billion loan under standby agreement with the government, they preferred exchange rate to be free floated and allow the market to determine the value for the rupee rather being defending it, CB responds to that with if they get the remaining tranche of the loan then they might have to be servicing relatively higher interest rate and at the current situation country is not in any urgency to get that loan, this statement by the Governor to Reuters criticized by the UNP economist Mr.Harsha stating that there are not such conditions outlined in the agreement of paying higher interest rates and Sri lanka currently getting financial aids from China which will put country at huge risk so prefer the IMF’s loan which is more regulated and transparent.

After all dramas and interviews finally CB has decided to free float the currency by last Friday (3^rd of February ) allowing it to depreciate further 30 cents and by Monday again by further 30 cents, but said it will sell some of its reserves if there is any huge demands for the Dollars ( Said to be Quantity intervention), it’s worth to note that interest rate has been increased by 50 basis point by CB to curb the liquid poured into the market, which of course will slow down the consumer spending and hinder the GDP growth percentage, already the rate is lower than the expected Growth, CB stating middle east tensions, sanction over Iran by America, and unprecedented weather prevailing in the European economy as the reasons for the slowdown in the growth, the Stock market is the reflection mirror of Sri lankan economy, at the present context which is losing in the value for 10 straight sessions now and nearing the all important 5,000 points supporting level, but the foreign nationals are vigilantly cherry picking some premier stocks such as JKH, Combank,  CTC etc even in this bearish market. Incidentally Sri lankan market is worst performing amongst the Asian countries after being topped the card in 2009, 2010 and placed at 10 in 2011.

It’s interesting to see how the Rupee will fare against the US dollars given  depreciation pressure, mounting imports and panic amongst forex traders, Analysts foresee it will stable between 118 to 120 mark but not sure about how CB reacts to this condition since which will spark inflationary pressure in the country and also will have negative impact on its GDP growth rate, also Government officials said they are still into the IMF’s remaining loan and may be because of that CB would have allowed for free floatation of the currency.

Face Book IPO (A timely Blog)

After a good reception of my earlier blog related to the economy, business quadrant, now I’m getting ready to disturb my audience with overwhelming blogging, thanks for the feedback from my closest buddies, I will keep that in mind while writing blogs thus keep the language application simpler.

This time my topic is already famous amongst you people and it has become an inevitable part of every young men and women life which is non other than the "facebook" known as FB, the social networking era has done and showed several impacts to the global economy  mostly at positive sites not to mention the corruptions it has made, would you believe recent London riot taken place from the ignition of  an angry facebook user’s comment over his best buddy’s shot, and it hard to believe Egyptian protestors were gathered at street after  requests made through FB, now our neighbor country India has filled case against internet giants like FB, Google, YouTube to revise their privacy policies or otherwise will be banned in their country after reportedly noticed several congress leaders were abused in FB community pages. 

So basically social networking is used for virtual marketing purpose by its inventors, you may think it is  being free to everyone then how could FB afford to float this organization in such a large scale for eight years now, here only their success is hanging on they can counterpart with their advertising agencies that look we have 800 million users (approx 40 times of Sri Lankan population) so your product or services will be reached to all of these people who are currently beneficiaries of FB and in turn the organizers will get good revenue from their  major revenue stream of advertising activities. 

The next step for this successful venture is to go for public and generate some good funds to boost their internal and often called cost free funds, Mr.Zuckerberg the creator of FB already in the list of Forbes magazine young billionaire, who turned down the start up business killer Microsoft’s $ 15 Billion worth of takeover bid is lined up for his dream company’s Initial Public Offer (IPO), after being rumored for several months their speculated IPO entry. Now everything official by 1^st of February he will be submitting his initial papers to the commission with worth of $10 Billion initial offer which will value the company at staggering $100 Billion, next to Amazon co, McDonalds co, and Bank of America and FB will be the only company which has drawn massive media coverage after Google’s successful IPO held in 2004.

Now let me comment through the timing of this particular IPO, the future of social networking sites and possible impact it may have on sliding and tipping American economy, Facebook was founded eight years back at America’s famous university’s hostel room as you would have correctly guessed it is Harvard University by Mr.Zuckerburg and his roommates, now it exists almost most of ours palm (Mobile Phone devices)so definitely which is the unparalleled expansion, growth and success for FB and its co, but is the timing of IPO entering is right? Or would they have entered couple of years back?, I would say they could have done that at least a couple of years back when they shattering the rival organization with their ever growing popularity and ever increasing user accounts, but now somewhat it has stopped and people have come to their declining stage in product life cycle of FB (product life cycle has 4 stages Introduction, Growth, Mature, Decline) which are visible in the financial sites which allow for public comment on particular topic, main things users cited for their diminishing urge for the use of FB are too much of changes in layouts, their private policies, and of course other social networking sites competition particularly recent launch of internet lead Google’s Google+ social networking site, although it has only 60 million users compare to FB’s 800 millions, but if there is future to be foreseen for Social networking industry, then Google can easily takeover or parallel with FB’s status given their reach in global internet portal, the dusk of Microsoft’s browsers started after Google entered into that business, so anything can be happened if Google plan their strategy wisely and aggressively.

General public as always want something new unprecedented in their life, when FB came to use it was such a pleasure since it was a new experience for them to use,  but now almost nearing a decade and the underlying principal of FB is still the same of giving platform for social network , which is according to me a huge risk for FB, specially when they come to an open market, in very unlikely scenario if their IPO is not accepted by investors then the value of the company will become to half as it would estimate now (current estimate $ 100 Bn) and any worst case scenarios happen to internet technology industry in future will always reflect in their share price movements, I would have liked if they have diversified their organization into some new venture and then come to the IPO or could have done their presence two years earlier.

Now let see how the American economy will be benefited from the IPO of FB, to be honest it has already made the spark to the investors amongst America and those who were hidden in the wings during the last 6 or 8 months of drought in economy started flee out, so it’s a good news to the Wall Street to see some good dollars been poured into the market which in turn swifts S&P, fortune indexes, from that onwards they may get in track irrespective of European economic downturn, FB officials states that although they are a virtual organization they managed to contribute UK,USA and other several European countries GDP growths with the help of promoting those countries business organizations to their targeted customers through FB’s advertising facility and its user base. But there are some authors argue, what is actually there for an American people to get from FB, its neither product nor service as an investment banking or financial services organization to boost the economy in the country, it is just a social networking so why all these hypes being created to this IPO and prosperous forecasts to USA economy, in addition to that they forecast FB will not be a successful one as Google did it in 2004.

Whatever said and done as a capital market follower I anticipate FB IPO to do well in at least for the first few weeks of May (trading will be mostly started in May) also wishes to see managers for the issue allocating some portion of the shares to retail investors too (its unusual America still don’t have any laws which accommodate small investors in IPO market, where as Sri Lanka has passed the regulation to offer certain percentage to small holders in IPO disbursement, we should be proud our country has pioneered America in this regard at least)   

These are just a reading I did in popular financial sites and structured in a way as I understood about this IPO and scattered some of my thoughts in between about this particular business and its IPO, hope you readers too like it. And Advanced Thanks for reading. :)