Thursday, March 23, 2017

Adjusting to new normal

The next post of Morning Trekk will be published on 3 April 2017.
 
Thought for the day
"All the ills from which America suffers can be traced to the teaching of evolution."
—William Jennings (American, 1860-1925)
Word for the day
Comportment (n)
Personal bearing or conduct; demeanor; behavior.
Malice towards none
Now that SC has effectively admitted that Ayodhya land dispute may not be decided through legal route, what are the options left?
First random thought this morning
Once a group of people comprising statesman, entrepreneurs, economists, bureaucrats, business managers, and financial analysts were asked a question – “What would you do if you get a INR100bn lottery? The replies were as follows:
Economist: “The proposition is purely hypothetical. I cannot answer this.”
Bureaucrat: “Will take early retirement, buy a bungalow on a hill station and enjoy”.
Business Manager: “Will put 75% in fixed deposit and start a business with the rest.”
Financial analyst: “Buy a good house, make a world tour, put 75% of money in fixed deposit and take a high risk bet with the balance.”
Entrepreneur: “Will leverage the money 3x and begin a new business venture.”
Statesman:  “Will investment money in projects that makes 1mn people capable of earning INR100k every year.”
You decide who from this group is fit to govern the country like India.

Adjusting to new normal

It is almost five years since the markets started discussing about the "New Normal" in global economics. The jargon essentially means that we should get used to a lower level of economic growth for a longer period of time.
The recent data, policy statements and policy actions suggests that the thought has begun to gain wider official acceptance.
Most global agencies like World Bank, IMF, ADB, OECD etc. have lowered the levels of global growth, which they would consider good or satisfactory. Even China sounds happy with 6.5% growth projection.
Central bankers like US Federal Reserve have already started to reverse the loose monetary policy, accepting that 3% GDP growth and 2% inflation would good targets to achieve. The others like BoE, BoJ, ECB, RBI, RBA etc. are also talking about the same.
In my view, as we adjust to a lower pedestal, new horizons would emerge. We are already witnessing the adjustment phase of the economic cycle shifting to a lower orbit. For example consider the following:
Corporate: Companies are selling core assets, acquired in past few years with great hopes; airlines are competing with railways; hotels are competing with home stay; automobile manufactures, realtors are offering humongous discounts to get rid of inventory; IT companies are delaying calling the new hires; instead of jumping over each other to capture airwaves, telecom operators are merging operations to spare existing airwaves; road projects that were awarded with exuberant premiums are getting cancelled; sports and entertainment events are finding it difficult to get sponsors; managements are working overtime in cutting corners to save margins, as topline are no longer priorities; many fancy startups have stated to wind up to cut losses.
Consumers: Consumers are not crowding the red sales; household budgets have reconciled to higher energy prices, rail fares, vegetable prices, service tax on every rupee spent and lower return on savings; savings are settling at lower level, and credit outstanding is rising.
Government: The government has become austere; has taken many unpopular decisions even during crucial elections
Financial institutions: Usually, the financial institutions, especially those in public sector, bear a substantial part of the cost of adjustment. We have seen in past 3years that the “restructured” assets of PSU banks have risen significantly. The credit growth is lagging even the GDP growth. The banks appear to have adjusted to the reality of “restructuring” and hence are conserving capital (by lending less and selectively).
New horizons
Historically, the adjustment phase has always resulted in durable cost efficiencies, higher productivity, smarter consumption patterns, stricter lending norms, better compliance levels and reformed policy framework.
Material (esp. cement and metal) companies, large banks, consumer (both durable and staple) companies and IT companies have come out much leaner and stronger out of this phase.....shall discuss it in more detail later
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Wednesday, March 22, 2017

Where INR is headed

"Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country."
—William Jennings (American, 1860-1925)
Word for the day
Anthophilous (adj)
Attracted by or living among flowers.
Malice towards none
Why a sudden rush in media to highlight the secular credential of the Yogi?
First random thought this morning
The common market area of Europe (European Union) is looking distinctly similar to the Congress Party of India.
The people outside it are not very sure if it will survive. The people currently inside are divided. Some, primarily who have lost their niche and suffer from a relatively stronger Euro, want to leave. Some, primarily who have gained from market access and relatively weaker Euro, hope that it is a sustainable arrangement, and therefore want it to stay.
Few appear confident about its relevance or otherwise in the current context.

Where INR is headed

A lot of people have expressed their surprise as well as concerns over sharp appreciation in INR value versus its global peers, especially USD, in past few months. Many have sought my views on the likely path for INR in near future.
I want to make it clear that I am no expert in the matters of macroeconomics, foreign trade or currency trades. While I do assign a small weight to the currency impact in my investment decisions; the consideration is mostly limited to avoiding companies that are unduly impacted by currency volatility.
I also strongly believe that Portfolio investment of few billion dollars may not have any lasting impact on the exchange rate of INR. However, sustained FDI inflows do support the case for some currency appreciation.
In my view, like any other tradable commodity, the exchange values of a currency vis-à-vis other currencies depends on the relative demand and supply of these currencies at any given point in time.
In simple terms, the recent sharp appreciation of INR vs. USD in recent months indicates that the demand for INR vs. USD has sharply outpaced the supply. There could be several reasons for this higher INR demand versus USD. For simplicity, I classify these reasons in three categories (a) structural, (b) cyclical and (c) speculative. Some examples are as follows:
Structural reasons
(a)   There have been some significant changes in the composition of foreign trade of India in past one decade or so leading to structurally higher demand for USD.
The structure of our imports has changed in favor of consumer goods as the domestic supply has failed to meet the burgeoning consumption demand. A large part of this demand has in fact been generated through massive government social sector spending and managed Chinese currency. The imports and therefore demand for USD is mostly inelastic to economic growth.
On the other hand the composition of exports has changed in favor of engineering goods, from dominantly consumer goods (tea, tobacco, leather, spices, textile, jewelry etc.). This has increased the correlation of exports to global growth, which is likely to remain below par in at least for next few years.
(b)   The change in political regime in 2014 has restored the confidence of global community in Indian political establishment and therefore markets & economy. This confidence was seriously impacted by a spate of scams, scandals and policy flip flops in the preceding 5-7yrs. This has certainly led to reduction in risk premium for INR denominated assets. Besides this has also prompted higher inbound FDI. There is nothing to suggest that this trend will reverse in near future.
(c)    The efforts to improve infrastructure and remove procedural constraints are likely to help improving India’s export competitiveness and result in higher exports growth.
The structural reasons are therefore mostly in balance at this point in time.
Cyclical reason
(d)   The success of RBI's measures in reigning the runaway inflation, strict fiscal discipline and improvements in trade balance have helped lowering rates in the economy to a limited extent.
As of now, both the inflation and fiscal deficit seems to have bottomed out and accordingly RBI has changed its policy stance to Neutral from the earlier Accommodative. The interest rates are therefore not seen changing materially from the current level in very near term.
This stability has made INR assets attractive to foreign investors.
(e)    The protectionist measure taken by the government in past one year to curb imports and promote exports through various tariff and non-tariff measures have also helped the trade balance to some extent. For example, from a large steel importer, India may have turned into a net steel exporter in past one year.
(f)    The outlook of EUR is clouded by the political calendar of Europe, especially schedule for Brexit, French and German elections. This is also seen helping Indian currency that is being perceived as safe haven by many under the current circumstances.
Speculative reason
(g)    The Fed Chairman’s recent remark about the gradual trajectory of rate hikes, against the widely speculated steep hikes, has led to recovery in US bond yields and weaker outlook for USD. This has made emerging market local currency assets attractive on relative basis.
(h)   The move to abolish 86% of Indian currency in circulation is speculated to have resulted in material reduction in informal market for USD, known as hawala trade in common parlance. This is speculated to have resulted in significantly lower demand for physical dollars in Indian market, resulting in stronger INR.
On balance, I feel the current strength in INR is mostly cyclical and to some extent speculative. It may not last beyond few months, in my view. Presently, I am working with 67/USD as average exchange rate for my FY18 earnings.
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Tuesday, March 21, 2017

The road ahead - 4

"The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth."
—William Jennings (American, 1860-1925)
Word for the day
Overwinter (v)
To pass, spend, or survive the winter, e.g., to overwinter on the Riviera.
Malice towards none
Why no one is highlighting that incorruptible image, frugality of needs and capacity to work round the clock could have worked in Yogi's favor!
 
First random thought this morning
The present round of assembly elections is over, with seemingly stable governments in place in all the five states. Election rhetoric is behind us as all Chief Ministers are talking serious business only.
Hopefully, Delhi MCD election will not become an issue of national importance, and we'll see focus on improving execution, rather than devising new plans and making promises. At least till Gujarat elections are announced later in the summer.

The road ahead - 4

Continuing from the last Friday (see here), the point I am trying to make is that the Empowerment stage if Indian democracy is almost over. The prime minister, the leader of opposition in Lok Sabha, and at least 23 out of the present 31 state Chief Ministers are first generation politicians from very modest socio-economic background.
In past two decades, the process of Enablement of these empowered people has also gathered remarkable pace. Particularly, in past three years a number of programs have been initiated to enable the people. For example, financial inclusion through Jan Dhan, MSME financing through MUDRA, Skill enhancement and training through Skill India, improved accessibility through deeper and wider digital penetration, rural road connectivity, improved air connectivity, expansion and improvement of highway network, social security through crop insurance and universal insurance schemes, augmented electricity supply through higher generation (including focus on renewables), better transmission and distribution and restructuring of SEB finances, etc.
It is now time to begin the Engagement phase of the evolution.
Empirically the Engagement phase is usually the best phase of evolution of a democratic society. In this stage, the economy transcends from the entitlement based structure to contributory structure. Subsidies and grants make way for fees and taxation.
A majority of empowered and enabled population contributes to the economic growth and development through higher taxation and fees for civic services. This is therefore the phase when the demand for physical and social infrastructure, like roads, power, ports, healthcare rises exponentially and investment in these sectors becomes economically and financially profitable.
Historically, for the capital markets this is the golden period. As more and more people join the mainstream economic growth and development process, the savings and investment rates rise on sustainable basis. The demand and supply of capital is usually maximum in this phase of evolution; and so is the capital market activity and wealth creation.
I see some of the recent events as an attempt to trigger the engagement phase of socio-economic development and growth - the most notable being the sudden move to abolish high denomination currency notes forming 86% of currency base in the country. This, in my view, is a courageous attempt to engage a large section of society in the mainstream economic development through better tax compliance.
Complete abolition of subsidy on transportation fuel, and gradual withdrawal of subsidy on cooking fuel, implementation of a uniform GST law, reforms in state electricity distribution, self funded social security through pension and insurance schemes, rationalization of farm and food subsidies and stricter tax compliance standards are some more indicators of the transition.
These are however early days to jump to a trade on this transition, but I am keeping a close watch.
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Friday, March 17, 2017

The Road Ahead - 3

"Say not, 'I have found the truth,' but rather, 'I have found a truth.'"
— Khalil Gibran (Lebanese, 1883-1931)
Word for the day
Cimmerian (adj)
Very dark; gloomy; deep e.g., Cimmerian caverns.
Malice towards none
A senior journalist who has written millions of reams about caste dynamics in Indian elections, was found to be blissfully unaware that
(A) Nai, Mochi and Halwai fall under the same category of non Yadav OBC.
(B) Marwari Vaishya are OBC in Bihar.
(c) Jat in UP, Punjab, Rajasthan, Haryana and Uttrakhand are not the same.
(d) Muslim and Sikh communities also have deep social divisions like Hindus.
First random thought this morning
With a variety of challenging roles, performed nearly to the perfection, the young actress Alia Bhatt has earned respect and admiration of millions of cinema lovers, critics and fellow professionals in the entertainment industry.
She is the same girl who was trolled and harassed on social media, not long ago, for not being able to correctly name the President of India in a TV chat show.
Ms. Bhatt, through her hard work and brilliant performances, has demonstrated well that if you do your work honestly and with perseverance, you need not bother about who is President, Prime Minister or Chief Minister. You can attain success in your field, regardless.

The Road Ahead - 3

Talking about the form and extent of wealth redistribution effort that PM Modi would need to make to put the Indian economy on sustainably high growth path, I would like to reiterate my views about the stages in which a typical democracy evolves.
Evolution of a free democratic society occurs broadly in three phases – empowerment of people, enablement of people and engagement of people.
In the empowerment phase people are empowered with constitutional and legal rights so that they could construct the social and economic organizations they would want to live in. The political organization is largely derived from the socio-economic organization of choice. In modern world, parliamentary democracy is the most popular political organization for societies choosing to organize themselves in a free and capitalist economy.
The transition from an aristocracy or oligarchy to parliamentary democracy is often a chaotic process because the people might not be properly equipped by education to select the best rulers and the wisest courses.
In the second, enablement phase of evolution the so empowered people are enabled through a variety of endeavor so that they could pursue the socio-economic path of their choice. Social equality, economic equality and gender equality are some key desired outcome in this phase. Wealth redistribution through taxation, welfare schemes and legislative provisions (like land ceiling, currency elimination, restrictions on business and asset ownership etc.), inclusion of economically poor, socially oppressed and women in government and economic activities are some of the major efforts seen in this phase.
The conflict between the wealthy & powerful (landlord) and the poor & oppressed during enablement phase often causes civil unrest. The inadequacy and inefficiencies of institutional framework to supervise the wealth redistribution process invariably leads to rise in instances of corruption in public life.
Unfortunately, in many cases it is also seen that some intended beneficiaries become too powerful and appropriate power and resources meant for their peers. This creates division and mistrust in the society and elongates the process of enablement.
In the last phase of the evolution, the empowered and enables people take part in the building of strong economic institutions and free market by engaging themselves in the growth and development process. This is usually the golden period for any democratic society that has chosen free market economy as their preferred socio-economic organizational setup. In this phase a large part of the population participates in the virtuous cycle of higher earnings – consuming – saving – investing – earning leading to sustainably higher consumption and investment demand.
In Indian context, our constitution envisaged a democratic social organization with free market economy. The people were constitutionally and legally empowered from day one of constitution coming into effect. (Interestingly, the USA took almost 200years to give full and equal rights to all its citizens through The Voting Rights Act of 1965).
However, in practice the empowerment process was delayed by at least three decades. Firstly, the Indian National Congress (INC) which was the primary vehicle for freedom movement transformed itself into a political party. The transformation ensured that the Congress Party which was dominated by the feudal lords and elite class at the top became overwhelmingly dominating political force in the country leaving little for the dissent or competition. The policy making thus focused on retaining control of most resources and activities with the government (by proxy with Congress party) and providing for just the elementary necessities to the common man.
All the voices who spoke for social justice, empowerment and enablement were forced either to fall in line with top echelons of the party or quit. The opposition to the Congress thus mostly came from communist/socialist forces which survived on parochial support base amongst some caste, community or region. The empowerment and enablement processes were thus hindered to a great extent.
It was in 1980’s when first time a nationwide movement took shape to seek empowerment and enablement for common people of the country. The enablement process started a decade later with government slowly giving up control over resources and economic activities.
Given that the process of enablement has so far mostly been involuntarily and heavily influenced by electoral considerations rather than social-economic reality, it has been marred by large scale irregularities, corruption, and inefficiencies.
The socialist movement in the country gained tremendous momentum in past 3 decades. These forces ruled many states and often played a critical role in formation and running of the federal government. However, for the lack of a credible and wise leadership, these forces have been often seen degenerating into feudal fiefdoms of few individuals and their families.
We should analyze the failure of the likes of Samajwadi Party (SP) led by Mulayam Singh Yadav, Rashtriya Janata Dal (RJD) led by Lalu Prasad Yadav, Bahujan Samaj Party (BSP) led by Mayawati etc., and continued domination of Congress by feudal forces, in this light.
PM Modi has shown solid resolve in accelerating the process of enablement of people. Massive drive for financial inclusion, digitalization, skill enhancement, social security etc. have been undertaken during last three years. The results of the same in the economic terms may not be visible as yet. But hopefully, we shall see positive outcome in next few years.
The unconventional move to abolish 86% of national currency in circulation, shall also be seen as part of the drive to redistribute wealth for enablement of people. Its success, though questionable at this point in time, shall reflect in better tax compliance (hence more tax revenue for public social expenditure) and lower cost of credit for SME borrowers (due to better CASA and higher money velocity for bank).
This enablement effort should logically lead to beginning of engagement phase of evolution - the golden period for economy and markets.
....to continue
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Thursday, March 16, 2017

The road ahead - 2

"You have your ideology and I have mine."
— Khalil Gibran (Lebanese, 1883-1931)
Word for the day
Arithmancy (n)
Divination by the use of numbers, especially by the number of letters in names.
Malice towards none
Business people who abused PM Modi for Demonetization, should not rush back to his fold.
You don't know what's coming next!
First random thought this morning
The recently concluded assembly elections in Goa and Manipur have again brought to the fore the debate over the role and relevance of governor in the state administration.
It is an undisputed fact that most governor appointments are political in nature, and are made by the party running the central government of the day with a view to seek favor in return, should a situation arise in the state.
The best way out perhaps is to abolish the office of governor and assign his constitutional duties to the Chief Justice of the High Courts of the respective states.

The road ahead - 2

 
“…democracy ruins itself by excess-of democracy. Its basic principle is the equal right of all to hold office and determine public policy. This is at first glance a delightful arrangement; it becomes disastrous because the people are not properly equipped by education to select the best rulers and the wisest courses”.
"As to the people they have no understanding, and only repeat what their rulers are pleased to tell them";
“to get a doctrine accepted or rejected it is only necessary to have it praised or ridiculed in a popular play. Mob-rule is a rough sea for the ship of state to ride; every wind of oratory stirs up the waters and deflects the course. The upshot of such a democracy is tyranny or autocracy; the crowd so loves flattery, it is so hungry for honey, that at last the wiliest and most unscrupulous flatterer, calling himself the ‘protector of the people’ rises to supreme power.” (Plato as quoted by Will Durant in “The Story of Philosophy”)
In the heat of 2014 general elections, PM Modi promised that if elected to power, he will bring back all the black money stashed abroad. The estimates of Indian black money in foreign lands, though mostly unsubstantiated, were mind boggling. He allegedly said that this money would be sufficient to give rs15lacs to each poor household in the country.
Though everyone appreciates that these were purely rhetorical statements made in the heat of fierce election contest, opposition leaders have made it a point to criticize the prime minister.
In my view, this criticism is unfair and uncalled for.
But at the same time, it cannot be denied that seven decades have passed since India attained independence from the British rule. This period has seen Indian economy growing to become one of the leading economies in the world. Unfortunately, the growth has remained mostly unequal and unjust to a large extent. The time therefore is ripe that an extensive effort is made to minimize the economic disparities amongst people.
Conventionally the effort to bridge the economic divide is limited to wealth redistribution through taxation and subsidies. In Indian context, bribery has also been a major channel of wealth redistribution.
However, in Indian context, these conventional methods are least likely to succeed in meeting the objective of economic equality, in my view. Because (though many may like to disagree with me on this) in my view, the structure of traditional Indian businesses and democracy itself remains quintessentially feudal. This structure does not favor efficient wealth redistribution.
PM Modi has this challenge at hand of breaking this nexus between feudal business and politician, to pave way for the efficient redistribution of wealth.
Those who consider good politics as bad economics must appreciate that an economy of Indian size and character would need 60-70% people "Earning-Saving-Consuming-Investing" to grow on sustainable basis. With 20-25% "Earning-Saving-Consuming-Investing", the growth cannot be sustainable.
....to continue tomorrow.
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Wednesday, March 15, 2017

The road ahead

"Wisdom stands at the turn in the road and calls upon us publicly, but we consider it false and despise its adherents."
— Khalil Gibran (Lebanese, 1883-1931)
Word for the day
Luciferous (adj)
Providing insight or enlightenment.
Malice towards none
Let's hope with a BJP led government in Manipur, would make Delhi people realize that Manipuri people are very much Indians and deserve to be treated like that when they come to Delhi for study or work.
 
First random thought this morning
It is truly sickening to see that most senior journalist and so called veteran political analysts continue to see the election results from the prism of caste and religion.
Can't for a moment they assume that "youth, women, poor and farmer" group encompasses most people from minority communities, dalits and backwards also!
What could be the basis of their belief that a young woman MLA from economically poor background will not adequately represent Dalit and Muslim women?
Has anyone tried to report, how many youth, women, poor and farmers contested on BJP ticket in UP and won?

The road ahead

The recently concluded assembly election results, especially for the largest state of Uttar Pradesh, have triggered a number of debates in the society.
On the political front, it is now widely accepted, even by his most vocal adversary like former Finance Minister P. Chidambaram, that the Prime Minister Modi has inarguably emerged as the tallest political figure in the country. The UP and Manipur elections establish that his area of influence is now all encompassing.
To that extent, it would be safe to presume that the crisis of leadership with which we have struggled since 2004 is mostly resolved.
Most observers and commentators are interpreting the current assembly election results to mean a rather long period of policy continuity along with political stability, something we have not seen in a long time.
This may motivate skeptics to portend that we may see even more unconventional measures like abolition of 86% currency notes.
But, at the same time, it gives confidence that we may continue to see politically tough but economically prudent decisions being taken and implemented. The case in point, total decontrol of transportation fuel, gradual decontrol of cooking fuel and rationalization of farm subsidies. Something, Indian politicians have notoriously avoided to do in past.
From social viewpoint, the apparent acceptance of PM Modi by large minority communities and socially backward and most backward sections of the society (not traditional supporters of his party) is an encouraging development.
One, it is likely to reduce unnecessary friction in the society, allowing the government to focus on the growth agenda.
Two, it shall increase the pressure on the government to make growth more inclusive.
Three, it may help in repairing the image of the Indian state in international arena; especially in light of the adverse publicity it earned during the past three years on account of the allegations of mistreatment of dalits and oppression of minority community.
The direct economic impact of the emergence of PM Modi as undisputed leader of India, is still uncertain.
From macro economy viewpoint, PM Modi's resolve to maintain fiscal discipline, avoid unproductive doles, and making the growth deeper and broader should support macro and external stability for Indian economy.
However, from micro viewpoint, we may see significant disruption in many areas. The key things to be watched would be (a) the form, pace and extent of wealth redistribution he is promising; (b) how the needs for foreign capital & technology and protecting the domestic businesses are balanced; (c) how the need to modernize and organize the businesses is balanced with the need to promote labor intensive small and cottage businesses; and (d) how the public sector investment is used to catalyze the private investment.
...to continue tomorrow.
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Thursday, March 9, 2017

If they fail, well...they fail

"Couples are wholes and not wholes, what agrees disagrees, the concordant is discordant. From all things one and from one all things."
—– Heraclitus (Greek, 544-483BC)
Word for the day
Portmanteau (n)
A word made by putting together parts of other words, as motel, made from motor and hotel, brunch, from breakfast and lunch, or guesstimate, from guess and estimate.
Malice towards none
The blame of loss lies on whose shoulders?--------
(a) If BJP losses
(b) If SP-Cong alliance losses.
(c) If BSP's vote shares falls below 18%.
First random thought this morning
What is the role of media of in the business of elections.
Is it an influencer, trying to mold public opinion in favor of or against a particular party or candidate?
Is it a reporter, just reporting the events occurring on the ground?
Is it a mediator trying to bring parties together or creating rift in them?
Is it an agent that brings political parties closer to people and their issues?
Then the question remains - what should ideally be media's role in the business of election, if at all there should be one?

If they fail, well...they fail

A very senior government official, who retired recently, argued that it is time to invest in public sector stocks. His argument was rather simple - the level of corruption is diminishing fast, level of professionalism is improving and transparency is much better now to provide comfort to investors.
He strongly felt that these changes are remarkable, sustainable and should lead to much better growth in these mostly large companies, with huge asset base.
I am somehow not convinced. I continue to believe that owning a miniscule stake in the businesses in which majority stake is owned by the president of India does not make much business sense.
My argument is simple. Like any other corporate house, the businesses of PSUs could be divided into two categories - (a) core businesses and (b) non-core businesses.
The core business of government of a democratic welfare state could only be the socio-economic welfare of the people. Making profit is usually incidental and mostly undesirable in these businesses. Running these businesses in an professional, efficient, and transparent way should ideally not add to the profitability of these businesses.
The non-core businesses of a democratic welfare state is an anomaly. The government has no business in doing such businesses. Why would an investors, who obviously invests for making money, should be investing in non-core business of a confused entrepreneur.
With 5% teledensity, Department of Telecommunication was a social venture. With close to 100% teledensity, BSNL, MTNL are non-core businesses for the Government. They should be looking for a closure to this business, with satisfaction that its objectives have been fully achieved. Trying to perpetuate this business and compete with private enterprises is not a good idea for the government.
Same is true with banking, civil aviation, power, capital equipment, and roads etc.
The Rail Minister wants us to buy minority stake in a company that runs business of railway ticket booking and catering food to rail passengers. He should answer, why government should at all be doing this business.
No matter how much transparent, non-corrupt and professional the manager of a PSU be, the fact is, and it would remain, that the majority owner does not care a dime for the minority shareholders. The regulator has so far not shown any teeth, insofar as the protection of minority shareholders' interest in PSUs is concerned.
For example, PSU banks have been burdened with the cost of servicing the Jan Dhan accounts. Could you raise a voice against it in the AGM. The most inefficient employees of PSUs are automatically entitled to the benefits of 7th pay commission award.
In my view, for investment the PSUs should be evaluated like any other private enterprises. If they fail corporate governance criteria, well they fail.
While I do not hold any brief for the momentum traders, to investors, PSUs have rarely made money.
And for those who are excited about the superlative performance of PSUs in the current market context, the following data point could be useful.
The current bull market started from last week of August 2013, with the government taking definitive steps to correct the problems of twin deficits and inflation.
In the last 42months period, Nifty has gained 47% and PSUs have gained around 22% (PSU Nifty, data available from march 2014). The worst underperformer IT sector has also registered similar gains. Metals and infrastructure have done only marginally better.
The current bull market had been about inflation and interest rates.
Auto and banks have clearly led the rally, and appear tired.

 
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