Friday, September 13, 2013

All rats should become cats

The data released yesterday reveals that the industrial growth in India rebounded majorly in July, growing 2.6% (versus consensus – 0.8%). This should usually provide some more legs to the ongoing market rally. However, given that the market has already rallied hard in past one week and the next week is expected to be heavy in terms of news flow, the immediate reaction might be little muted. We would not like to reject the data as unreliable, given that it had been consistent in its inconsistency.
We still feel there is nothing to suggest in the broader context that in near future liquidity pressure will ease, rates will fall dramatically, inflation pressure will ease substantially, currency will strengthen or investment will pick up in any notable way. This essentially means that in near term the Indian equity market will continue to gyrate in tandem with the FII mood swings.
Insofar as the action drama that inaugurated on 4 September 2013 with regime change at RBI is concerned, we feel it should close in next few weeks, as the final countdown to 2014 elections starts with a round of state assembly elections. In our view, most of the actions henceforth may inflict pain in short term rather than providing relief.
We would like to repeat a story told couple of times earlier also. “Once the king rodent called a general assembly of all rats to discuss the feline threat. Everybody was too concerned and bothered about the menace. After a long deliberation, it was unanimously agreed to appoint a strategic consultant to advise on the matter. The consultant so appointed studied the problem in great detail and came out with this voluminous report, that primarily highlighted that cats are far more powerful, wise and smart animal than mice. Therefore it is extremely difficult for the mice to put up a credible defense against the menacing felines. The only way to counter the threat, the report egregiously suggested, is that all rats should become cats.”
Similar appears to be the case of Indian economy. While everyone is clamoring for government action to spur the growth – nobody is exactly suggesting how to do that. Is it possible to have sustainable growth with high inflation; mindless deforestation and mining; businesses which are not willing to pay for labor, capital, land, natural resources; vast majority of people who do not like to pay taxes; a national conscience heavily biased against any kind of compliance; capital scarcity when risk appetite is waning amongst global investors; and transitioning polity where the emerging federal order is far from established and the extant feudal structure has crumbled.
In our view, India is in transition – socially, politically and hence economically. Expecting sustainable high growth in this phase could only lead to disappointment and despair. The best outcome in next 2 years would be if we could avoid any major civil unrest and major deterioration in balance sheets at all levels – household, corporate, banks, and government.
In case the rating agencies, global research firms and corporates have a better solution than “rat should become cat”, we would like to hear that.
Thought for the day

“Consistency is the last refuge of the unimaginative.”
- Oscar Wilde (Irish, 1854-1900)

Word of the day

Hegira (n)

A journey to a more desirable or congenial place.

(Source: Dictionary.com)

Shri Nārada Uvāca

Shahid Sidiqui, Kamal Farooqui, Azam Khan – Is Samajwadi Party losing traditional Muslim support base?

Some stray birds are tweeting that a tacit SP-BJP understanding could be brewing to keep Mayawati out of contention.

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