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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