"Nature uses only the
longest threads to weave her patterns, so that each small piece of her fabric
reveals the organization of the entire tapestry."
— Richard P. Feynman
(American, 1918-1988)
Word for the day
Jeremiad
A prolonged lamentation or
mournful complaint.
Malice towards none
The ignominious decline of
communist parties in India, at a time when income inequalities are rising at
the fastest pace since independence, and a right wing party is dominating is
quite intriguing.
First random thought this morning
Five key takeaways from the recently concluded assembly elections:
(1) Time is running out
faster for Congress than most anticipated. The Congress stands almost no chance
in UP, PK or no PK.
(2) BJP would need to
galvanize the UP people on some issue if it wants to unseat SP. Otherwise,
Akhilesh is set to come back by default.
(3) Nitish needed crutches
of Lalu and Rahul to retain Bihar. Mamata has done it on her own. She may have
better claim on united opposition leadership as compared to Nitish.
(4) The voters continue to
give decisive mandate. The days of fractured mandate are gone.
(5) BJP might want to go
alone in Punjab polls.
Good days and peaceful nights
Many parts of the country are presently experiencing an intense
heat wave. The mercury is breaking more records than Virat Kohli. But we have
not seen many citizens complaining.
One primary reason is significantly improved electricity supply.
Despite sharp rise in electricity demand, the supply has remained stable; grid
is working fine; and load shedding hours are much shorter and pre-planned. Many
smaller towns in UP, MP, Bihar, Maharashtra, Tamil Nadu etc. where 6-10hr load
shedding was normal during summers, are facing just 0-4hr of load shedding.
Delhi, Haryana, Gujarat and many other states have not reported any scheduled
load shedding.
For millions of students, small businessmen, farmers, housewives,
and companies making electrical appliances Achhe Din & Raat (Good days and
peaceful nights) might have already arrived.
People who did not had sweat for hours every day or stand in the
long queues for two litters of kerosene (for lighting) or stay awake the whole
nights as their power backups failed to recharge; and the people sitting in
swanky TV studios might not feel it, but it certainly is a major relief for millions
of people.
The power market in India is almost a buyers' market, much like
the telecom and auto. It's different from cement and steel markets, which
despite being in oversupply command some pricing power due to cartelization and
state protection.
The situation has been fully exploited as an investment theme. All
the fruits (low hanging, high hanging and the rotten ones) have been plucked.
The appliance manufacturers who are immediate gainers of better
power supply are trading at valuations that would need 5years of exponential
demand growth to justify. This market may not run into supply constraints
anytime soon as the planned investments more than take care of the likely
demand growth. The global capacities are already underutilized. JPY, KRW, CNY devaluation
will keep imports competitive for long time.
The power producers, distributors, fuel suppliers and power
equipment manufacturers are struggling with surplus capacity, falling
regulatory margins; materially lower merchant prices and rising competition. In
absence of material pick up in industrial demand, 80-90GW additional capacity,
likely to go on stream in next couple of years will only add to the pressure.
In my view:
(a) The appliance demand
will explode during FY18-FY21. The high valuation currently enjoyed by the
companies may sustain. I may stay invested there, and even add some more with 3year
perspective.
(b) The power market will
come to balance in FY18 as industrial and farm demand picks up and UDAY scheme
is fully implemented. I will look at some producers from purely dividend yield
perspective.
(c) Equipment producers I
will give a miss, except for technology innovators in T&D automation space.
The collateral benefits of stable and adequate power
supply:
(a) Rise in industrial productivity, especially MSME
segment.
(b) Rise in household productivity.
(c) Lower household savings as expenditure on consumer
durables rises and recurring electricity expense also picks up (much like
telecom).
(d) Fiscal comfort as industrial and farm production rises,
power subsidies not needed.
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