Thought for
the day
“There are people who want to make men's lives more
difficult for no other reason than the chance it provides them afterwards to
offer their prescription for alleviating life;”
-
Friedrich Nietzsche (German, 1844-1900)
Word of the
day
Hector (n)
A bully
(Source: Dictionary.com)
Shri Nārada Uvāca
Praise Narendra Modi and get CBI on your tail.
What are we celebrating?
“Clearly, the ineptitude, brazen populism and lack of appropriate
policies from the government is the largest part of the problem. You really get
a feeling that no one is in control, and the markets are responding to that.”
"The new RBI governor has market credibility. For now,
he's saying all the right things."
-
15 October 2013 Geoffrey Kendrick, Currency and
rates strategy, Morgan Stanley
‘From pariah to world’s
favorite”, if the media headlines are any guide, analysts have already declared
the victory for INR. The mood has changed rather quickly in past 6weeks. INR
has jumped ~10% from 68.75/USD to 61.50/USD, and Nifty has jumped ~17% from
5200 to 6100.
The applause has been for the new Suave RBI governor Raghuram
Rajan, and correctly so. But now what? How long a central bank can “talk
currency up or down”? Eventually, the economic fundamentals will have to take
over, in our view.
In this context, there are three points that need to be pondered
over. These points are critical as these will also decide the direction and
momentum of equity markets in next couple of years.
(a)
Whether Raghuram Rajan has enough rabbits in his
hat that could be pulled out every month?
(b)
Whether the structural issues plaguing the
Indian trade balance, demand-supply equilibrium and therefore currency strength
have been addressed in any sustainable manner over past couple of months?
(c)
Has INR really strengthened in past couple of
months
Four measures are primarily responsible for the gains in the INR
value. (a) Taking the largest participants, i.e., PSU Oil Marketing Companies
(BPCL, IOC and HPCL) out of the currency market; (b) Providing huge subsidy to
banks for mobilizing foreign currency deposits; (c) Suppressing gold demand
through tariff (raising duty) and non-tariff (import restrictions etc.); and
(d) Allowing banks to raise more debt funds in foreign currency.
In our view, these are temporary solutions and if continued for
long may likely introduce more distortions in the equilibrium.
Monetary policy has so far been ineffective in providing any
solution to the demand – supply inequilibrium and inflationary pressures are
only rising. There are little signs of reversal of negative feedback loop of
higher inflation – higher rates – lower growth – higher demand supply gap –
higher inflation.
The governor will likely further strengthen this loop by
raising rates on 29 October.
The CCI’s (mis!) achievement of clearing multi billion
dollars worth of project has been touted so much that nobody even bothers to
listen.
The reality is that the CBI’s latest FIR in coal scam will
most likely result in (a) many more outward FDI proposals and (b) further delay
in execution of projects stuck for want of administrative approvals. The
already wide rift between politician bureaucracy chasm shall widen
substantially in next few months.
With PM in direct firing line now, the winter session of the
Parliament has been virtually killed. So the next meaningful legislative action
is expected only in June-July 2014 when new Lok Sabha will assemble.
And insofar as the strength of INR is concerned, it is
mostly an optical illusion. INR/USD averaged 39 in 2007, 48.5 in 2008, 46.5 in
2009, 44.7 in 2010, 53 in 2011, 55 in 2012 vs. the last closing of 61.85.
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