Thought for the day
"My mother said to me, 'If you are a soldier, you will become a general. If you are a monk, you will become the Pope.' Instead, I was a painter, and became Picasso."
- Pablo Picasso (Spanish, 1881-1973)
Word for the day
Atticism (n)
Concise and elegant expression, diction, or the like.
(Source: Dictionary.com)
Malice towards none
One thing the Congress Party has certainly not learned in past fifteen years - It is tough to beat Narendra Modi in Bhashan Bazzi!
I hate you like I love you
The controversy over applicability of MAT to book profit of
foreign portfolio investors is unfortunate; though it is not new and perhaps
not the last one to erupt.
In past 15yrs the markets have faced the brunt of concentrated
selling, whenever the government of day or the regulators have raised the
issues such as misuse of DTAA with Mauritius, money laundering in the garb of
foreign portfolio investment, and taxation of foreign investor at par with
domestic investors.
Unfortunately, on no occasion the government or the regulator
could withstand the pressure. The sharp fall in the equity prices and currency
would almost instantaneously invite a retraction of the thought.
Five things stand out clearly from this trend:
(a) The ghost of the collapse
of Thai Baht and consequent trouble in Asian economies in late 1990's has left
a lasting impact on Indian psyche.
(b) We have miserably
failed in managing the paradox - Cursing the influence of foreign culture and
capital on India and sparing no occasion to invite, welcome and embrace
anything foreign.
It reminds me
the love and hate relationship between Lord Krushna and Gopis of the Brij
pradesh. Gopis would curse Krushna and vow daily that they would not give into
his charms. But the hatred and resistance would last only till the time they
heard the magical notes of his flute.
(c) In past 25yrs of
their presence in India, foreign portfolio investors (FPI) have frequently
caused huge volatility in Indian markets. We have not seen any credible plan to
manage this phenomenon.
(d) We have not been
able to decouple the long term real investment (FDI) and relatively short term
FPI investment. The latter though much smaller leads the trend of flow in the
former.
(e) Despite tough
stance of FM Arun Jaitely on issue of applicability of MAT on FPIs, a 10%
further fall in market will see a retraction.
China’s RRR cut reeks of desperation
The People’s Bank of China (PBoC) is “desperate” to control
Shanghai’s red-hot equity rally, analysts said, after the central bank slashed
the reserve requirement ratio (RRR) on Sunday.
The 100 basis-point RRR cut to 18.5 percent is the biggest
since 2008 and comes in response to a sharp selloff in stock futures on Friday
after the China Securities Regulatory Commission (CSRC) tightened margin
trading rules. The CSRC aims to cool Shanghai’s stock market, which is up over
30 percent year to date at seven-year highs. Futures plunged during late
trading on Friday, with the China A50 futures contract down 6 percent in New
York.
“After the announcement on Friday, stock futures were looking
horrible so something needed doing to put a floor under that from a short-term
point of view. But everybody’s going to take a look at this and say ‘hold on,
why are they [PBoC] overreacting so strongly?’ People are going to start
sensing desperation here,” Paul Gambles, co-founder of MBMG Group, told CNBC on
Monday.
Indeed, policy watchers were scratching their heads over the
series of conflicting announcements. The PBoC is scrambling to ensure stability
in China’s notoriously volatile share market, said Mark Andersen, global
co-head of Asset Allocation at UBS CIO Wealth Management.
“They want to see markets go up to some extent, but not out of
control. With some of this margin financing, they want to see a relatively
stable capital market with property prices falling so they don’t mind equity
prices moving up a bit to support the broader economy, but they don’t want to
see bubble territory,” Anderson said.
The PBOC ‘needs’ markets
The magnitude of Sunday’s RRR cut confirms that authorities have
become increasingly dependent on equity markets, economists say.
Beijing is using the stock market to stimulate innovation and
entrepreneurship and channel liquidity to the real economy to hedge economic
downside risk, as well as to facilitate deleveraging of state-owned
enterprises, HSBC said in a report. “[The RRR cut] is a political goal to
create wealth effects in both A- and H-share markets.”
This past weekend was a replay of recent events, according to Macquarie
Securities. Three months ago, the CSRC rolled out margin financing curbs on a
Friday, only to back down Monday night after markets slumped.
These about-turns in policy aren’t surprising though “as policy
makers need equity markets more than ever,” the bank said.
Time to cash out
“Crazy things like a 100 bps RRR cut are not going to help
confidence. It’s going to make people respond in the short term, but people
will remain negative in the long-term,” said MBMG’s Gambles, who recommends
investors to cash out now.
Will Kaisa's default trigger more defaults?
Kaisa Group Holdings Ltd. captivated Wall Street by minting
fortunes from troubled real estate in China.
Now the developer is in trouble itself -- and the question is
how far the pain will spread.
On Monday, the news came that many had been dreading for months:
The company, caught up in an anti-corruption probe, is buckling under its debts
as a slumping real estate market weighs on the entire Chinese economy. After
missing $52 million in interest payments, Kaisa, once a stock market darling,
now confronts an uncertain future.
It’s a remarkable comedown for a company that burst onto the
scene in 2007 as billions poured into Chinese real estate. Its troubles, long
in coming, have set investors on edge and have many asking if Kaisa is a
one-off or the start of something worse. Just last week, Standard & Poor’s
warned that “more defaults cannot be ruled out,” saying it’s concerned
profitability in the Chinese property sector is faltering.
“More than one big developer is going to go under,” said Erik
Gordon, a professor at the University of Michigan who examines legal issues in
corporate and sovereign debt restructuring efforts. “Busts follow booms.
There’s no reason for it to be any different in China.”
While reaction to the default was muted in Chinese markets on
Tuesday, the saga has sparked jitters among the country’s corporate bond
investors on multiple occasions over the past several months. (Bloomberg)
Trivia
The Japanese drug maker Dai-ichi Sankyo bid Sayonara to India by
off loading its entire ~9% stake in Sun Pharmaceutical Limited. This obviously
raises a big questions - "WHY?".
The true answers to this will however be known only when some
big shot at Dai-ichi or Sun publishes his biography or memoires, perhaps a
decade or two later.
Some possible answers are:
(a) Ranbaxy was a
nightmare, which some big shot at Dai-ichi just could not bear any longer.
(b) Dai-ichi found
Sun to be an expensive and had better alternatives.
(c) Sun refused to
accommodate desired number of Dai-ichi representatives on the board.
(d) Dai-ichi
management knows something bad about either Sun or Dai-ichi, that the public
would come know in due course.
Anyways, Singh brothers must be having a good laugh.
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