Pankaj Jainpjain at teknatus dot comwww.teknatus.com

The Financial Crisis and IndiaBarCamp DelhiOctober 11th and 12th, 2008

Introduction to the Financial Crisis

• The worst crisis since the Great Depression

• Sub-Prime Mortgages

• Loans extended to people and business with less than stellar credit worthiness

• Value of assets dropping quickly leaving negative equity

• Credit

• Scare of loan losses spreads beyond sub-prime mortgages

Timeline

• Fed ignores pleas for investigating sub-prime lending – 2001 to 2004

• HSBC's Mortgage chief resigns after losses hit $10.5 Billion – Feb. 2007

• Bernanke says the housing sector "is a concern, but at this point we don't see it as being a broad financial concern or a major factor in assessing the course of the economy." - Feb. 2007

Timeline

• UBS shuts sub-prime lending unit and GMAC announces huge mortgage related losses – May 2007

• Countrywide Financial (largest US mortgage lender) avoids bankruptcy by taking $11.5 Billion loan

• Freddie Mac posts $2 Billion Loss – Nov. 2007

2008

Banks face losses of $900 Billion

• Jobs lost across the board across many industries Collapse of major Wall Street firms begins with Bear

Stearns and continues thru to Lehman Brothers. Others?

Global liquidity issues know no boundaries Credit? What's that? Oil and commodities go thru the roof and then crater

Some Stats

• $16 Billion outflow from India in 2008• Inflation at 12%• $291 Billion – Indian FX reserves as of 03 Oct. • IndianOil Corp costs to rise 70% to $45 Billion• Industrial growth plummets to 1.3% in August• Sensex down ~50% in 2008• Sensex up ~50% from 2004

Why Should I Care?

• Unprecedented growth from 2003 to 2007 Where did the growth come from?

Credit! Foreign Investors (Wall St., Street firms,

Hedge Funds, Banks, PE Funds, VC Funds) Increased buying power of consumers

SENSEX goes from under 5,000 in early 2004 to a peak just above 21,000 in Jan. 2008 to 10,400 on Oct. 10th, 2008

Indian Real Estate

• 10x growth in metro real-estate prices in 5 years

• Flipping!

• Affordability for the average person?

• Can you get a (home|auto|personal) loan?

• Affordability for the more privileged person?

• Can you get a (home|auto|personal) loan?

• Standard Charter and Citibank Refuse Loans to RE Developers – 09 Oct. 2008

Retail Growth

• Big bets made on retail growth

• Malls! Malls! Malls!

• Who's buying at the malls?

• What's selling now?

• High End Luxury Items

• Where to make (conservative) bets now?

• Where to get Rs. for expansion?

• Are further expansions warranted with slow retail growth?

Startup Funding

• Indian Investors are getting even more skittish

• VC game is a long-term play

• Can VCs continue to provide returns attractive to their investors

• Can investors wait for the next exit window?

• VCs are advising portfolio companies to come up with revenues quickly and be prepared for a major dry spell

• Many VCs will quit and move to angel funding

Discussion

(Re)Sources

BusinessWeek, What will the crisis mean for venture capital?, Sarah Lacy, 09 Oct. 2008 http://bit.ly/3A43xX

Yahoo Finance Charts and Historical data

Meltdown 2008, TerranceDC, Oct. 2008, http://bit.ly/4gRiwh

Sequoia Capital Presentation to Portfolio Companies - http://bit.ly/16F8WK

Google

RBI Website

Teknatus Blog http://www.teknatus.com/blog/pjain