Thought for
the day
“Truth reveals itself, though often belatedly. This
admirably suits the politician in power.
The interregnum between truth and its revelation is
generally a period of manipulation.
In this interregnum alibis and half-truths rule. Finally,
unless someone is alert, truth gets confined to the archives. Result: alibis
masquerade as truth”
-S. Gurumurthy, as quoted in ‘Polyester Prince’.
Word of the
day
Wroth (adj)
Stormy; violent; turbulent
Stormy; violent; turbulent
(Source: Dictionary.com)
Shri Nārada Uvāca
Why Tarun Tejpal is so important?
Great hopes - III
We
have been highlighting for past many months that there is a decent probability
that we may have a equity rally as part of a highly charged global “risk on”
mood. This rally would be akin to the surge seen 1998-1999 and 2006-2007 and
therefore lead the valuations to bubble territory. The current market momentum
indicates that the probability of such rally is rising.
In
Indian context the local catalyst seems to be the likelihood of Narendra Modi
becoming prime minister and replicating the success of Gujarat Model of
development at the national level. In 1998-1999 the unprecedented wealth effect
created by Y2K opportunity and global ITeS boom and in 2005-2007 unprecedented
investment in infrastructure projects had catalyzed the massive equity rallies.
Both the times, equities had given up almost all the gains made during the
rallies within a short span of time, with the leaders of the rally losing
massively.
It
is therefore important, in our view, to understand the risks the expected 2014
market rally would carry.
2M vs. M: The most potent risk to
the Modi becoming prime minister may come from the trio of Mayawati and Mamata
Banrjee.
On
our recent trip to UP we found that Mulayam’s Samajwadi party (SP) is losing
considerable support amongst people. Congress’s local unit is completely
demoralized and BJP is not aggressive enough. So, the SP and Congress loss
could be gain of BSP, unless BJP consolidates substantially in next 4months. If
Mayawati, who carries a strong national ambition gets 35 seats, Narendra Modi
becoming PM would become a tough task.
Similarly,
Mamata Banerjee has indicated that she would rather support a non-Congress
non-BJP government at the center. The recent municipality polls suggest that
her popularity is still strong in West Bengal.
Failure
of BJP to get 190-200 seats on its own could therefore spoil Modi’s chances of
becoming PM.
Global economic
instability returning:
Despite stratospherical rise in liquidity and near zero rates over past
few years, the global economic has failed to grow at desired pace. This
highlights the fragility of the current economic optimism. Any Greece or Lehman
like event could again threat the surreal optimism over economic stability.
Global
liquidity tightening:
Though we do not believe that global liquidity would be tightened in any
substantive proportion over 2014, but general view seems to be contrary to
this. A QE taper and consequent rise in cost of capital could be a threat for
debtor economies like India.
Inflation and rates remaining high: Sharp rise in global
commodity prices due to US and China recovery, persistently high food prices
and consequent higher domestic rates could not only delay the domestic economic
recovery, but also snatch lot of political leverage away from Modi.
Continued policy logjam: The biggest risk to Modi Rally would
come from the failure to put the new government’s act together in quick time.
The margin for error here is almost NIL.
Also read:
Letter to Mr. Narendra Modi
Great Hopes – Part II
No comments:
Post a Comment