You may be familiar, indirectly, with my barber. During my last haircut (it grows fast) he gave me a small tip on the latest currency market trends. "Sir, the rupee rates are improving and the talk is that it could get better," he said in a hushed voice. I nodded my understanding.

For expatriates like me and my barber, any decline in the Indian rupee against the dollar is an "improvement" in the exchange rate, as the dirham in which we are paid is pegged to the dollar.

But I could only pretend to share the excitement, my worry being that when the Indian economy is sitting on huge piles of foreign assets, any decline in its currency could mean that someone has begun to dump rupee-denominated assets, potentially hitting my tiny portfolio of penny stocks.

Always keen for distraction while at the tender mercy of my barber, I pondered over the consequences of losing money on the market. It had taken me a lot of persuasion to convince my wife — another key actor in my financial dramas, to spare a bit of cash for my latest stock market adventure.

During the past few months, with every point gain in the Sensex I have been gaining credibility at home as to my investment prowess. So, as I headed home, I wondered how I might avoid the potshots that might be heading my way upon the latest trends.

I checked the index and my portfolio value on the internet. As feared, both had tanked. Unaccountably, I hated my barber for a moment.

Of course, that poor soul had no role in foreign institutions exiting Indian stocks in search of safer assets. Overseas investors have bought Rs303 billion ($7 billion) of Indian equities this year, according to the Securities and Exchanges Board of India, the nation's market regulator. Inflows from foreign investors reached a record Rs834.2 billion in 2009, as the biggest rally in 18 years lured foreign funds.

Last week markets across Asia were driven down by the growing perceived safety of the US dollar on speculation that the bailout plan for Greece won't stop Spain and Portugal seeking similar aid. Clearly the fear of fiscal risk in Europe appears to be spreading, and has triggered a sell-off across Asia.

Violent protests

These investors can't be blamed for their concerns. Bond yields in Greece, Portugal and Spain have been on the rise as investors question these countries' ability to cut budget deficits. Concerns are also growing whether the Greeks will accept the proposed bailout, as violent street protests against the stringent austerity measures have erupted.

Amidst such scepticism, there is a growing view that this rescue package is aimed more at saving foreign bondholders (the majority French and German institutions) rather than the Greek economy and its citizens.

Then why not allow Greece and other EU members facing huge fiscal problems to default on their debts and withdraw from the euro? Of course, this would make them pariahs in the global capital markets for some time. But the currency redenomination and devaluation at least would allow the various governments to make their exports and tourism competitive again, and free themselves from an excessively tight monetary policy designed for a rich-only club of nations.

Default or not, staying in the euro almost certainly means slow growth, which will make the pain of fiscal adjustment prolonged and probably even more painful.

In the event of a default it is the bondholders who are going to suffer the most. These bondholders, however big they are, in the ultimate analysis are investors who bought a risk in exchange for a return. In the event of a default it is they who should pay the price rather than me and my barber.

We, meanwhile, tend to believe that a fall in rupee is a windfall, while its purchasing power in terms of the value of assets we own in that currency is depleting.