Dear Niveshaks,

We are pleased to present you all the third Anniversary issue of “NIVESHAK”. The same can be downloaded from any of the following links:-

http://tinyurl.com/Niveshak

http://www.scribd.com/doc/63000515/Niveshak-Aug-11

We would like to thank Mr. Sunil Mitra (Finance Secretary, Ministry of Finance), Mr. Utkarsh Majmudar (Vice-President, Global Research, HSBC Bangalore), Dr. Jean Imbs (Professor at Paris School of Economics) and Mr. B.R. Tripathy (Chief Commissioner, Central Excise & Service Tax Department) for giving us interviews and sharing their views with our readers. We would also like thank all the teams who participated in Sector Report Writing Competition for their valuable entries.

The Sector Report Writing Competition conducted across b-schools in India to mark the entry of Niveshak in its 4^th year was a huge success. The competition saw more than 100 teams from premier b-schools sending in their entries. Amidst so many good reports, it was indeed a difficult task to choose the best reports. The result of Sector Report Competition is as below:-

Congratulations to all the winners!!

The lucky winner of July Issues Fin Q is Roy Paul Mathew of SJMSOM, IIT Bombay. He receives a cash prize of Rs. 500. If you would like to get your article featured in the coming issue of Niveshak, pick up any financial or economic issue, pen down an article and send in your entry by 10th September, 2011. The best article will be awarded "Article of the month" and the author(s) will get a cash prize of Rs.1000 (Details inside Niveshak Announcements Page).

Dear Niveshaks,

Congratulations on your second anniversary. Thank you for having me as the guest editor of your anniversary issue and giving me the opportunity to express my personal views on some of the milestones that shaped the financial world.

These are very fascinating times that we live in – much has been written and analysed since the inception of the recent financial crisis in 2007 which will result in having a deep impact on our mindsets and actions in future atleast for a while. It is important to note that this crisis has been handled in a concerted manner globally and should also have singular ramifications for good or bad. Regulations are getting dusted off and rewritten.

Since the early 20th century, time and again the financial world has been shaken by major events that have brought about lasting reforms in the financial world. To my mind much of these events have to do with liquidity and investor confidence.

The financial panic in 1907 triggered by the collapse in a copper trust resulted in NYSE falling by about 50% from its peak and second highest bankruptcy filings to that date – retracting liquidity and confidence. There was no overarching governing body to step in and return normalcy. It eventually led to the creation of Federal Reserve System. Indeed, a very positive development.

The Roaring Twenties led to the Great Crash in 1929 and a chain of events which resulted in a decade long economic slump in industrialized nations and severe macroeconomic problems – unemployment, decline in money supply and GDPs; Dow reached its nadir point in July 1932. Subsequently the Congress passed the Glass Steagall Act in 1933 which required a separation between commercial banking and investment banking operations to resolve conflicts and to control speculation. The Act was later repealed in 1999 and was blamed to be one of the many causes of the current subprime crisis.

Post World War II, the Japanese government created an environment which encouraged savings. Credit was easy and with so much money available for investments, speculation was inevitable and it resulted in too much money chasing assets and led to an economic bubble between 1986 and 1991 in real estate and stock prices. The ‘bubble-burst’ hit very hard and lasted for more than a decade only to be worsened in the recent crisis. It also resulted in the development of Yen carry trade which eventually collapsed in 2008.

Asia has grieved as well during 1997-98 when the Thai Baht collapsed on the back of de-pegging the currency from USD and significant outflow of foreign debt from Thailand into US-denominated assets due to rise in interest rates in US. This made the country effectively bankrupt and the contagion spread to neighboring countries affecting Indonesia and South Korea most. It was a reminder of the fact that foreign exchange reserves are important and Exchange rate regimes are difficult to maintain. The Asian economies have more than recovered since then but not without suffering some permanent currency devaluations.

With this backdrop I think it was not very difficult to imagine (of course in hindsight) that the Governments will do a good job of steering the world out of the crisis and they have by and large succeeded so far. However what seems to be different this time around is that we have not seen as many bankruptcies and permanent loss of capital (keeping history in perspective) – Assets have mostly just changed balance sheets and that may be something to worry about.

I have brought you a long way to make a small point that when markets are too confident and shooting up, think if what’s driving it is sustainable, because all said the law of gravity still prevails.

Wish all of you a great life.

Ghanshyam Das Khandelwal

Head - Strategic Transactions Group,

HSBC Bangalore

Disclaimer: "The opinions expressed in this editorial are personal to the author and do not reflect those of the HSBC Group."