Thought for the day
"A man may imagine things that are false, but he can only understand things that are true, for if the things be false, the apprehension of them is not understanding."
- Isaac Newton(English, 1642-1727)
Word for the day
Maudlin (adj)
Tearfully or weakly emotional; foolishly sentimental
(Source: Dictionary.com)
Malice towards none
The Thakur from UP is in news again!
Not a good omen.
Rift too wide and deep to ignore
The recent prints of manufacturing data from China, Japan, and
EU have raised concerns in all quarters. The US picture is still mixed, but
definitely less buoyant than what it was five months ago when the talks of
summer 2015 Lift gained currency.
Back home, the contraction in core sector in March, the first in
17 months, put a question mark on the government's claim of removing supply
side bottlenecks to improve manufacturing and augment employment opportunities.
The core sector growth in FY15 at 3.5% was slowest since 2.8% of FY09.
Though it may be slightly early to pass a judgment as conditions
in mining, power, steel and cement etc. may improve post coal mine allocations
and new gas allocation mechanism that came into effect recently. Nonetheless
anticipating a dramatic improvement looks tough as of now.
To make the matter worse, the outlook for monsoon this year is
cautious and global oil prices have shot
up sharply. This clouds the inflation and rate outlook.
Under the circumstances, it is pertinent to take note of the
concerns expressed by the federation of Indian Export Organizations (FIEO)
regarding plummeting exports. The apex body of exporters has warned that the
figures that are coming in are very worrying. The exports during FY16 are seen
reaching even last year's figures of $310 billion, save for a miracle.
As per reports the container exports from Ludhiana in the first
15 days of April fell 26.83% over the year-ago period. A sharp INR appreciation
against Euro and Yen has negatively impacted export margins and competitiveness
of Indian exports vis-a-vis peers like China.
In these circumstances, the suggestions of goal incongruence
between RBI and government of many key issues is extremely disturbing. Though
both parties have strongly denied the presence of any rift, it is too wide and
deep for everyone to see.
Entangled wool and a Papad
Travelling to remote areas of Himachal Pradesh in late 1980s, I
came across this brilliant personal behavior assessment methodology used by the
tribal people.
The elders of the families would get together to discuss the
matrimonial alliance of their wards. The prospective groom is given a bunch of
badly entangled wool and the prospective bride is given a very thin Papad and a
pitcher fully filled with water.
The boy is asked to untangle the wool and make a ball of it. How
fast and neatly the boy could do the task determines how wise, patient,
industrious, competent and resolute he is.
The girl is asked to roast the Papad and walk on a straight line
with the water filled pitcher on her head. A cleanly roasted Papad is taken as
proof of patience and grit. A successful straight walk without spilling the
water, proves the qualities like strength, focus, determination, dedication,
and self-control.
Applying this logic to some key ministers of the government, we
find that they have entangled the wool even more. A little more messing up
would create knots that would render the entire bunch of wool useless.
The Papad they have roasted is half burnt. They are also not
walking straight and letting the water to spill.
Three major problems that I could comprehend are as follows:
(a) There is
insufficient conceptual clarity on the economic model this government seeks to
implement and the path that needs to be taken to achieve the goal. The conflict
between free market economy, gandhian socialism, and cultural nationalism is
palpable. There is sincere attempt on the part of the prime minster to resolve
the conflict and discover a middle path. However, there is little sign of any
resolution at this point in time.
(b) Like media, many
organs of the government are also suffering from the "Breaking News
Syndrome". Everyone rushes to claim birth of child, even where the
prospective parents have not even met each other.
The consequence
is that the debate is distracted easily and the process gets miscarriaged
prematurely.
In my view, if
the proposals like NJAC, Land Acquisition, Resettlement of Kashmiri Pundits,
Public Debt Office etc. were discussed internally and with stakeholders in
detail before claiming brownie points in public, the chances of success would
have been higher.
(c) There is too much
centralization within the government.
These problems are not insurmountable. I hope, these will be overcome
sooner than later. But till then, markets will remain jittery.
After Delhi assembly, the West Bengal local body elections have
indicated that Modi-Shah combine may not be invincible. A defeat in Bihar
assembly will send strong confirmatory signals.
FPIs - call their bluff now
In past two decades a lot of emphasis has been given to the
foreign portfolio investors (FPI) making investments in the Indian equities.
As I have mentioned in my earlier
post, we have seen few instances of irrational boom and bust cycle driven
by collective withdrawal of FPI money. 1998 post nuclear blast exodus,
1999-2001 dotcom bubble and bust, 2006-2009 easy credit driven boom and bust
are some major incidences.
However, I am not aware of any scientific study that shows long
term positive correlation between the performance of Indian economy and/or
equity prices and the direction of FPI flows.
However, there is enough anecdotal evidence to show the damaging
impact of the excessive volatility caused by their collective actions.
An elementary study of the trends in Foreign investments in the
listed companies in India gives the following results:
(a) Since 1993, the
cumulative FPI investment in Indian equities is Rs8344bn (US$171bn). In INR
terms they have earned an absolute return of 440% over this period. In USD term
the return is lower at 316%. This compares with over 1000% return in Sensex
during the period from 1993-and now.
(b) During 1993-2014
period Sensex has given negative return in 7 calendar years. Whereas the FPI
flows have remain positive in all but 3 calendar years. The meaning outflows
were seen only during 2008 (Rs530bn). On other two occasions flows were nominal
- Rs7bn in 1998 (post nuclear blast economic sanctions) and Rs27bn in 2011
(post CWG/coal scam and fear of EU disintegration). (see chart on next page)
(c) Foreign investors
have preferred to invest in secondary market and have avoided participating in
Indian businesses (see table on next page):
*
Foreign holding in Indian listed companies is
about 34%. Only 9% of this is classified as promoter holding (or FDI). Rest 25%
is FPI.
*
In market cap wise top 10 Indian companies, the
foreign promoter holding is just 1.4% (only one company, viz., Bharti Airtel).
Whereas the FPI holding in these companies is 42%.
*
In foreign holding wise top 10 Indian companies,
the foreign promoter holding is 61% vs. FPI of 25%.
*
In private Indian companies (ex MNC) foreign
promoters holding is just 4% vs. FPI holding of 29%.
Prima facie it appears that foreign investors have avoided
partnering with Indian promoters, and preferred to invest in companies where
they exercise control over the management. Also, they have mostly found India
an attractive investment destination in past two decades, regardless of
political instability, corruption, poor corporate governance, and no-ease of
doing business. Why do we need to kneel before them after every sale of US$1bn?
Interesting reads:
Trivia
Another round of tariff cuts in telecom services. The private
players have cut national roaming charges and public sector MTNL makes all call
during night free.
A similar price war is happening in airfares.
Both Big Bazaar and Reliance Retail are at war in retail
discounting.
The point to ponder is whether this marks Achhe Din for
consumers or the consumers will have to indirectly pay for the indulgence of
these vendors!
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