Indian currency most undervalued: Big Mac Index

As per the latest index, prepared on basis of market exchange rate as on 11th January, the price of a Big Mac is the highest at $6.81 in Switzerland, while the same is sold in India for just $1.62—the lowest in the world

New Delhi: If a Big Mac burger from local McDonald's outlet is taken as a benchmark, India is the place to get it cheapest in the US dollar terms, but this analogy also makes rupee the world’s most undervalued currency, reports PTI.

As per the latest Big Mac index, compiled by the Economist magazine to analyse purchasing-power parity of various global currencies, the Swiss franc is the most overvalued in the world, while rupee is most undervalued.

India was included in the index in July last year and has continued to rank the lowest on the list, which is compiled on the basis of the US dollar equivalent of the price of one Big Mac burger, priced $4.20 apiece in the US.

As per the latest index, prepared on basis of market exchange rate as on 11th January, its price is the highest at $6.81 in Switzerland, while the same is sold in India for just $1.62—the lowest in the world.

The rupee had depreciated sharply by about 19% last year and even fell to a record low of 54.30 against the US dollar on 15 December 2011. The current exchange rates peg the Indian currency at about Rs51 against the US dollar.

The price of Big Mac burgers of McDonald’s is considered for the index for the reason of the presence of fast-food chain across most of the countries and the magazine calls this theory 'burgernomics'.

This index was first compiled in September 1986 and new currencies, including Indian rupee, were added to the list last year to mark its silver jubilee year.

“According to burgernomics, the Swiss franc is a meaty 62% overvalued. The exchange rate that would equalise the price of a Swiss Big Mac with an American one is Swiss franc 1.55 to the dollar,” as per the latest index.

“The cheapest burger is found in India, costing just $1.62. Though because Big Macs are not sold in India, we take the price of a Maharaja Mac, which is made with chicken instead of beef,” it added.

Maharaja Mac is the closest Indian equivalent of Big Mac burgers at the Indian outlets of McDonald’s.

“Nonetheless, our index suggests the rupee is 60% undercooked. The euro, which recently fell to a 16-month low against the dollar, is now trading at less than euro 1.30 to the greenback,” the Economist noted.

Switzerland is followed by Norway, Sweden, Brazil, Australia, Argentina, Canada, Uruguay and Euro area among the countries with the top most overvalued currencies against the US dollar.

Among the places with most undervalued currencies, India is followed by Ukraine, Hong Kong, Malaysia, China, South Africa, Thailand, Indonesia, Taiwan, Sri Lanka and Russia.

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Broking houses undergoing structural shifts: Crisil

Structural shifts in the broking business include a distinct shift in trading pattern to “low-yield derivatives, increase in algorithmic trading, and intensifying competition from foreign players in institutional broking,” ratings agency Crisil said

New Delhi: Amid significant slowdown in capital market activity, Indian broking houses are undergoing structural shifts and are venturing into new businesses such as asset and wealth management, which are likely to contribute 50% of their profits in the next fiscal year, reports PTI.

Due to structural changes in the business environment and slowdown in capital market activity, the profits of Indian broking houses are expected to nearly halve in the current financial year (2011-12) compared to the previous year forcing them into newer territory.

Structural shifts in the broking business include a distinct shift in trading pattern to “low-yield derivatives, increase in algorithmic trading, and intensifying competition from foreign players in institutional broking,” ratings agency Crisil said.

“Broking houses have already begun responding to these challenges by reinventing their strategies. In their core business, they have been realigning cost structures, and focusing on superior and differentiated services,” Crisil Ratings director Ramraj Pai said.

Due to some of these fundamental changes in business, the pressure on broking houses during the current downturn will be more prolonged than in the previous one in 2008-09, Crisil said and added that to counter this brokerages are diversifying their businesses.

“Diversification is another strategy with players entering new businesses such as asset and wealth management, retail lending, and insurance,” Mr Pai added.

Asset and wealth management business had contributed just 25% of the broking houses’ profits in fiscal year 2010-11. But come financial year 2012-13, nearly half of the consolidated profits of broking houses are expected to come from these businesses, Crisil said.

Crisil Ratings director Nagarajan Narasimhan, however, believes though broking houses will face several challenges while implementing these strategies, their comfortable capitalisation will continue to support their credit risk profiles in this process of transition.

The aggregate net worth of CRISIL-rated broking houses was nearly Rs16,000 crore as on 31 March 2011.

The report further noted that lending books of the large broking houses are expected to triple by March 2013, particularly in two key segments—loans against property and gold loans; these segments will constitute around 45% of the book by March 2013.

The retail lending book of these players will triple to Rs30,000 crore by end-March 2013, from the March 2010 level.

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UN report pegs India growth at 7.7% in 2012, 7.9% in 2013

The report cautioned, “The downside risks to the regional outlook have sharply increased in recent months... particularly in case of India. Double-dip recessions in Europe and the United States would have a significant impact on economic activities across South Asia”

New Delhi: India’s economic growth rate will remain subdued at 7.7% in 2012 and 7.9% in 2013 as downside risks have increased, mainly on account of problems in Europe and the USA, reports PTI quoting a United Nations report.

“India’s economy is forecast to expand at a pace similar to 2011 in the following two years... at 7.7% in 2012 and 7.9% in 2013,” the UN report on ‘World Economic Situation and Prospects 2012’ said.

The report cautioned, “The downside risks to the regional outlook have sharply increased in recent months...

particularly in case of India. Double-dip recessions in Europe and the United States would have a significant impact on economic activities across South Asia.”

The government recently lowered the gross domestic product (GDP) growth target for the current fiscal to 7% from the earlier estimate of 8.5%.

However, the study gave a positive outlook on South Asia’s economic growth prospects and projected that the region’s economies will grow by 6.7% and 6.9% in 2012 and 2013, respectively, accelerating beyond the 6.5% growth rate experienced in 2011.

South Asia constitutes India, Pakistan, Nepal, Iran, Bangladesh and Sri Lanka.

The report also raised a red flag on India’s fiscal deficit target, saying the Indian government is unlikely to achieve its deficit target of 4.7% of the GDP for 2011-12 as lower growth has brought down tax revenues and disinvestment in state-run companies has been put on hold.

Nevertheless, the study has given a positive outlook for India’s job market, saying, “India is enjoying gains in employment rates.”

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