Desperate Measures to Arrest the Rupee’s Slide

I read an article in The Financial Express of yesterday about the measues taken by the RBI and a couple of other agencies to halt the rupee’s decent and constructed the following infographic.

India Controls to Stem Rupee's Slide

The Rupee Squeeze

What an u turn we have seen – of people of all manger of expertise who once extolled the decoupled state of Indian economy during the erstwhile “India Shining” days who are now weighing in with stories of markets being joined at the hip! Local stories do little to educate on what is happening and is going to happen (!) in our local markets. Most local commentators worth their salt correctly look to charts of the SPX, USD, credit in the US etc. as reliable portends of the shape of things to come. The de-couplers of past were certainly wrong – they ignored the big glue that sticks us (and other emerging economies) together with the rest of the birds flying at the head of our skein. That glue, is undoubtedly the currency exchange rate. Take a look at the comparison of the NIFTY vs the DEFTY chart below. I have also charted the ratio of DEFTY over NIFTY – since 1994 each unit of NIFTY is getting you progressively lesser and lesser quantities of DEFTY, indicative of a massive squeeze on the INR.


The human eye searches for patterns where there ought to be none! My untrained eye seems to suggest a great support at 3,000 on the DEFTY. We are ~3,350 currently, so a nice 10% correction would get us there. Possible? I don’t think any expert would be foolhardy enough to put a zero probability for that happening. So, either the INR rises in the immediate term or the market falls on disappointing results or both happen to get the DEFTY down to this level. But yes, as far as patterns and psychological levels of supports go, the 3k mark does provide a nice breather.

Corr Coefficients N day returns vs next N day returnSo if you are trading, the USD:INR is obviously a huge factor to consider. The graph on the right plots the correlations between N day returns (on a given day) and the immediately following Nth day return. The blue line is for the NIFTY N day return correlations while the red line shows this relationship for the DEFTY. For positive value of correlation coefficients, one can expect that given a positive (negative) N day return, the next N day return will also be positive (negative) – i.e. the tendency for the trend to continue. Both the NIFTY and DEFTY data suggests that this correlation peaks at N = 10, implying that given a 10 day trend, it is most likely that the following 10 day period will stay true to that trend. The point here is that from an overseas investor perspective, the relationship is more pronounced as compared to the internal view. NRIs are raking it all in!! Hopefully some of them will fill our reserves with their precious FCY and buy houses here.

Rolling 10 Day Returns NIFTYPlease note – this is median behavior, the N day returns are likely to show a normal distribution with some really fat tails (9/11, bombing of Parliament, Lehman event, etc.). the chart below shows the rolling 10 day return on the NIFTY over time and its 50 period moving average line. The outliers (i.e. the fat tails of the N = 10 day return normal distribution curve) are as high at 26.8% on the positive side and as low as 27.7% on the negative side!! Shouldn’t trading be an Olympic sport?

University’s Gender Commotion

199University Grants Commission’s National Eligibility Test is one entrace exam that I would never be able to crack however hard I tried. This exam is taken by candidates who are keen to land university level teaching jobs or secure junior research fellowships in universities. Inter alia, the most recent iteration of the exam that was conducted last weekend contained questions like:

At primary school stage, most teachers should be women because:

a) can teach children better than men

b) know basic content better than men

c) are available on lower salaries

d) can deal with children with love and affection


The exam (for university teaching posts) was first rolled out in 1989 after considerable delibration on the poor quality of individuals being selected in the teaching profession. If the above is the standard of the questions being asked, I wonder how is the exam living up to it’s billing. Given that 13,000 candidates took the test last weekend, would such questions differentiate talent? Presence of such absurd and silly questions seems to be one of the reasons why the cut-off marks is in the range of 55% – 65% (depending on your ‘category’). On top of that there is an awesome amount of mismanagement of results and the examination has seen it’s share of controversies and dharnas and protests. There have been candidates who have scored lesser than the stated cut-off threshold yet have been selected!! Aren’t we cool?

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