Thought for the day
“They must often change, who would be constant in happiness
or wisdom.”
-
Confucius (Chinese, 551-479BC)
Word for the day
Dulcify (v)
To make more agreeable; mollify; appease.
(Source: Dictionary.com)
(Source: Dictionary.com)
Teaser for the day
Who we want our next Prime Minister to be:
(a)
A conformist
(b)
A reformist
(c)
An anarchist
(d)
A contrarian
(e)
A capitalist
(f)
A socialist
(g)
A secularist
(h)
A nationalist
(i)
A superman
(j)
Can’t say
Need ≠
Demand
Yesterday, I received overwhelming criticism for my suggestion to
avoid large gestation infrastructure projects (e.g., power, roads etc.) and
financials for investment purposes.
Much of the criticism is driven by the assumption that these
sectors have seriously underperformed for some years and offer good value at
current prices. Most critiques assumed that with new government in saddle, the
infrastructure sector should in particular be in focus of investors.
My attempts to argue with some of the critics however exposed
the tremulous foundation their arguments stand on. The following two examples
are worth taking note of, in my view.
(a)
One common highlight of the criticism was
enormous physical infrastructure deficit that needs to be filled almost
immediately to achieve the potential growth rate.
In my view, in this context it is critical to make a distinction
between the “need” and “demand” for infrastructure. There is no denying that
the need
for infrastructure is colossal. To meet the ends of social justice, economic
equality, sustainable economic growth and regional balance, development of
social (e.g., education and health) and physical infrastructure (roads,
communication, power etc.) is imperative. But at the stage of development where
India stands today, the demand (ability to pay to fulfill
one’s needs) for infrastructure is abysmally low.
The infrastructure development therefore needs to be mostly
socio-political effort rather than an economic proposition.
The efforts to make roads, power and airports projects
economically viable by bundling land and coal resources in past 15years have
proved rather counterproductive. The evolving socio-political paradigm
indicates that in foreseeable future it would not be possible to masquerade land
and mining mafia deals as infrastructure development projects.
Besides, even if we accept the all hunky dowry scenario post
election, where are the balance sheets worthy of undertaking new large
projects? The only way existing infra developers could be viable is by way of
transmitting a large part of stress to lenders and equity holders and
offloading cash generating assets. Considering this, in my view, we are at
least two years away from making an investment theme out of infra developers
and financiers. For keeps sake odd L&T is fine with me.
(b)
The other subtle hint in most critiques was
Narendra Modi. The subterranean hope that messiah will come on a white horse
holding a magic wand in his hand and all problems will vanish in a poof seems
to be driving investment strategies.
I am also hopeful.
I believe Modi led BJP will cross 250 mark on its own. But that is a bad news
for equity investors in the short term. Most of the potential steps that the
new government will likely take to set the economy in order would only cause
pain in the short term….more on this tomorrow.
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